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This part of the Bill also provides the LSB with its range of powers. These are that the LSB may set performance targets relating to the performance of approved regulators and that it may monitor their performance, in Clause 30; exercise a power of direction over approved regulators, in Clauses 31 to 33; publicly censure an approved regulator, in Clauses 34 and 35; fine approved regulators, in Clauses 36 to 39; take over a function or functions of an approved regulator, in Clauses 40 to 43; and remove the designation of an approved regulator, in Clauses 44 to 47. These are significant powers but I believe that the LSB must have available to it the widest range of powers possible. There must be safeguards in the exercise of these powers, and I believe that the Bill provides for this.

This part also sets out the purposes for which a practising certificate fee may be levied by approved regulators and provides for the level of these fees to be approved by the LSB, in Clause 50. It requires approved regulators to have rules to prevent conflicts with the rules of other applicable regulators, in Clauses 51 to 53. It provides a power for the LSB to require information from approved regulators, in Clauses 54 and 55. And it provides for the Office of Fair Trading to make a report to the LSB where it is concerned about competition matters. In cases where the OFT and the LSB’s views conflict, the Bill provides for the Secretary of State to decide the matter after taking advice from the Competition Commission, in Clauses 56 to 60. There is also a provision for the LSB, where there is no suitable regulator and following an affirmative order by the Secretary of State, to act as an approved regulator, in Clauses 61 to 67. Finally, it provides a power, subject to affirmative order, for the Secretary of State to modify the functions of approved regulators in order that they may effectively discharge their regulatory responsibilities, in Clauses 68 and 69.

I move from regulation to alternative business structures. Part 5 provides a means of increasing competition and choice for the consumer. Companies and firms will now be permitted to have different types of lawyers and non-lawyers working together on an equal footing and will be able to do so with the benefit of external investment. In the Bill these alternative business structures are termed “licensed bodies”. The Bill requires any firm or company with non-lawyer owners or managers to be licensed under Part 5 if it wishes to carry out reserved legal activities. These firms and companies will have to seek a licence, either from the board or a designated licensing authority, which must be an approved regulator, and will be regulated by licensing rules and by the requirements of Part 5.



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It is important to note that the Bill also allows practices with different types of lawyers, but no external managers or owners, to emerge in advance of the Part 5 framework being commenced. These “legal disciplinary practices” are not alternative business structures under the Bill, and will not be regulated under Part 5, but the fact that we are allowing them to emerge in advance of alternative business structures answers a key recommendation from the Joint Committee chaired by the noble Lord, Lord Hunt of Wirral.

This also reflects the substance of Sir David Clementi’s proposals for alternative business structures. Mixed lawyer practices, a type of legal disciplinary practice, will come first. Alternative business structures, including multi-disciplinary practices, can then form the next step, but only where the board and licensing authorities judge that these can be regulated effectively. Sir David Clementi supported this approach in his evidence to the Joint Committee, saying:

The Bill provides a number of important safeguards, which also answer the Joint Committee’s concerns about the impact of non-lawyer ownership and management on legal services. These safeguards include: a focus on the work and professional conduct standards of lawyers within alternative business structures, and a duty on non-lawyers to refrain from causing breaches of these standards; requirements for a head of legal practice and head of finance and administration; approval requirements that must be met in relation to external investors; a power for licensing authorities to apply financial penalties, including an appeals procedure and arrangements for recovery of any penalties; the referral of employees and managers to appropriate regulators; arrangements for the disqualification of persons from being involved with alternative business structures; the suspension and revocation of licences; powers of intervention for licensing authorities; and arrangements for the avoidance of regulatory conflict.

Additionally, we have accepted the Joint Committee’s advice that clients of alternative business structures firms should have the same rights to legal professional privilege in their communications with lawyers in these firms as they would if they retained traditional law firms. Clause 182(3) to (6) in Part 8 provide for this. Clause 182(1) and (2) maintain the privilege of certain authorised persons other than barristers or solicitors, currently provided for by Section 63 of the Courts and Legal Services Act 1990.

Clauses 103 to 106 also provide that special kinds of bodies that represent a lower regulatory risk may be treated differently for the purposes of some of the normal requirements of the licensing regime. Such bodies include trade unions, not-for-profit bodies, community interest companies, and other low risk bodies with less than 10 per cent external investment or management. The lesser regulatory impact on those bodies is consistent with the Joint Committee’s recommendation. We should make it clear that we do

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not intend the Bill to regulate in any way lay trade union representation, whether whole or part-time in the workplace, nor to place additional burdens on those unions that provide legal advice or representation to their members.

Part 6 deals with legal complaints. This part of the Bill provides for the establishment of a new and independent Office for Legal Complaints. This will provide quick and fair redress and will improve consumer confidence in the system. It also provides that every authorised person must have internal complaints handling arrangements, and approved regulators must set standards for that. We have accepted the Joint Committee’s advice that the OLC will operate a scheme with the word “ombudsman” in the title. There will be a chief ombudsman and assistant ombudsman making decisions on individual cases. The Bill provides for the OLC to levy an additional charge on respondents when a complaint is made; a “polluter pays” levy. That is an important measure. It will act as an incentive on providers to place more emphasis on client care and settling complaints “in house” before they reach a stage of no return for both parties.

The Bill provides that an ombudsman may make orders for redress of up to £20,000. While consumers have argued that the level of redress should be set at a higher level, the highest level of redress in the legal sector is currently £15,000; which is for the Law Society. Implementation of the proposals in the Bill will take some time. We have therefore set the level of redress for the OLC at £20,000, but the Bill allows the limit to be altered by negative order of the Secretary of State following a recommendation from the LSB, its consumer panel, or the Office for Legal Complaints. The Bill also recognises the importance of the legal professions in continuing to discipline their members and provides for any matters of professional misconduct to be referred by an ombudsman to the approved regulator concerned for consideration of disciplinary action. Some have argued that the OLC should have the power to delegate the handling of complaints to approved regulators. I do not consider that would command consumer confidence. However, I do think it is right that an ombudsman should be able to seek expert assistance, and that is enabled by paragraph 15 of Schedule 15.

There have been concerns that there should be an appeal from decisions of an ombudsman. Our aim is to strike a balance between quick, informal redress on the one hand and the rights of the parties to challenge the result on the other. The model that we have chosen, based on the Financial Ombudsman Service, does just that. It combines both adequate protection for the parties’ human rights with a swift and fair redress system. We envisage the scheme having an internal review mechanism, so that parties can challenge a caseworker’s recommendation and request that an ombudsman reconsider that recommendation. We do not think that an external appeal mechanism is required—it is not required by Article 6(1) and it is not a feature of ombudsman scheme best practice. That approach is supported by Which?, which, in its evidence to the Joint Committee, said:



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Consumers will have the right to go to court and judicial review will be available to both parties.

Part 7 provides for the LSB to publish guidance about the operation of the Bill or the regulatory arrangements generally. It provides for the LSB to enter into voluntary arrangements with the intention of improving standards of service and promoting best practice in connection with the carrying on of any legal activity. It is right that those who are subject to regulation should pay the cost of that regulation, as in Clauses 166 and 167. The alternative, that the changes should be funded through general taxation, does not seem appropriate. The Bill therefore provides for the LSB to make rules providing for the imposition of a levy on approved regulators, bodies designated under Section 5(1) of the Compensation Act 2006, or any other persons prescribed by the Secretary of State by order.

Parts 8 and 9 provide for amendments to existing legislation to align it with the provisions of this Bill. The rules of the Solicitors Disciplinary Tribunal are to be subject to oversight of the LSB. The courts will be able to make a costs order in civil cases in favour of a party whose legal representation has been provided on a pro bono basis. Any such awards will be at the discretion of the court and will be paid directly to a designated charitable body established to administer moneys to organisations who undertake pro bono work. Also, the Bill will give effect to the Legal Profession and Legal Aid (Scotland) Act 2006, once enacted, which provides for new arrangements for handling complaints about lawyers in Scotland and removes functions from the existing Scottish legal services ombudsman. Those parts contain arrangements for the parliamentary control of orders and regulations made under the Bill.

Overall, these measures will help to restore consumer confidence in the handling of complaints and regulation generally. They will enhance competition by enabling lawyers to provide services in new ways. They will sweep away the decades of piecemeal reform, putting in its place a new regulatory system with clear statutory objectives and a single and independent regulator which is fully and publicly accountable.

I realise that the proposals I have set out represent significant reforms. But I believe they are essential to ensure that consumers can have confidence that there is a modern, flexible, transparent and independent system of regulation in place that can and will act to protect their interests.

I apologise for taking so long, but the provisions of the Bill are complicated. While it is right that over the coming months we should consider the detail of these proposals, I hope we can agree that there is a compelling case for change. I commend the Bill to the House.

Moved, That the Bill be now read a second time.—(Lord Falconer of Thoroton.)



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3.57 pm

Lord Lyell of Markyate: My Lords, I am honoured to open the batting, if that is the right description, but I do so with an apology to the noble and learned Lord the Lord Chancellor and to the House. As the result of a medical appointment which over-ran at Moorfields, I missed the first few minutes of the noble and learned Lord’s speech. However, it was a very helpful speech that set out the intentions of the Bill, which I think has a wide measure of support in the House and has been carefully prepared over some time. I would make only one point on its preparation, which I hope is not too cavilling. Only eight weeks were allowed for pre-legislative scrutiny whereas 12 weeks are usually desirable. I hope that the Government might be able to meet that in future.

Clause 1 sets out the regulatory objectives, which I strongly support. I anticipate that they also have the strong support of the Government who have proposed them. The Government may agree—and I would be grateful if the noble Baroness could confirm this—that they have a duty to facilitate those regulatory objectives. One extremely important regulatory objective is to encourage an independent, strong, diverse and effective legal profession. The importance of such a profession to the constitution of any free society can hardly be overestimated. It dates back to the famous case—not within the memory of noble Lords, but they will know about it—in which Sir Thomas Erskine defended Tom Paine over his publication of the Rights of Man at a time when those views, which are now almost universally accepted, were deeply unpopular and controversial. The legal profession must be able to stand up for those who are under attack under very difficult circumstances. That must apply also to those who are under attack and do not have the means themselves or through their friends—as Tom Paine did—to pay for their defence. Consequently, it is important that the legal aid scheme should be adequately funded. I am sure that the Lord Chancellor will agree that it should be adequately funded. There will be some argument about what is adequate, but I hope that he will take a generous view on that.

As for the cost of setting up these proceedings, the importance of an independent and strong legal profession is a matter of very strong public interest. The Bill is intended to further that public interest. But it is heaping considerably more costs on the profession. I ask the Government to think charitably and kindly on the idea that they should pay at least a proportion of those costs, which are for the public benefit and not for the benefit of the profession and will not increase the fees that the profession can properly charge. Otherwise the means of paying the costs will come from the professionals themselves, some of whom are not highly paid although their work is very important, as is that of those who do publicly funded work. Consequently, either they will suffer loss or the public will suffer loss of service. I hope that the Government might reflect a little further on that.

The main point that I want to deal with, in what I hope will be a short speech, is the importance of light-touch regulation. Unfortunately I was not in the

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Chamber to hear the first few minutes of the speech of the noble and learned Lord the Lord Chancellor but I suspect that he said—as has been rightly said in the past—that the Government are at least aiming at reasonably light-touch regulation. I support the notion that, under that regulation, the Office for Legal Complaints should provide one point of entry. That is obviously sensible. However, there may be a difference in the position of solicitors and barristers. I ought to declare an interest because I still hold a practising certificate as a barrister, although I do not do a great deal of private work at present.

There is a distinction between solicitors and barristers in this respect. I think that solicitors will rightly and warmly welcome an independent solicitors’ complaints system. It has been a deep trial for the solicitors’ profession—for which I have a high regard indeed—to deal with the number of complaints that they have had to handle. We must remember that there are at least 10 times as many solicitors as barristers and they are first in the line of attack when there are complaints. They provide a very important nationwide service although they are sometimes quite small firms and—though it is mildly to be discouraged—often sole practitioners. Handling the kind of complaints that arise in those circumstances has proved seriously difficult over the years. It will be a real benefit that that is no longer placed directly on the Law Society, although it is good to know that a high proportion of those who have been working in the current system will be transferred over—no doubt, if it be relevant, under the TUPE protection of employment provisions—to the new system.

As for the position of barristers, the Legal Services Ombudsman has repeatedly praised the system that the Bar has managed to provide as highly satisfactory. In relation to the Bar—it may also be true of solicitors but I am not as well informed about them—a very high proportion of complaints deal not only with matters of redress but also with matters of discipline. Matters of discipline will be for the profession; matters of redress might be dealt with by the ombudsman. It seems clumsy and unnecessary to divide the two. Therefore, I ask Government to think again on the question of delegating those powers, or at least to think about giving the Office for Legal Complaints the opportunity and power to delegate both discipline and redress to the profession, provided that it continues to carry that out as satisfactorily as it does at present.

The Bar is fortunate as the number of complaints is not massive and it can draw on a great deal of pro bono work that is freely provided by senior members of the profession. They provide a good service at low cost. That is something of value which should be maintained if possible.

This is necessarily a long and detailed Bill and we shall want to consider a large number of points in Committee. That applies also to alternative business structures. The opportunity to have wider business structures and more competition in the provision of legal services has a great deal to commend it,

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provided that it is very carefully thought through. We will assist in attempting to think that through, and I hope to play my part.

4.05 pm

Lord Thomas of Gresford: My Lords, with the leave of your Lordships, I shall speak in place of my noble friend Lord Maclennan of Rogart, who will reply on behalf of the Liberal Democrats.

First, I declare an interest: I am proud to be a lawyer. I started my career as a solicitor in a coal-mining and steel-making community, very similar to the sort of community that the noble Lord, Lord Lofthouse, was talking about when he addressed us on the tribunals Bill. It was a small firm in a small town and actually on the high street. It follows that I have considerable feelings on the importance of the high street solicitor. We covered the whole gamut of legal activity and had access to a highly specialised Bar. Even as an articled clerk I was privileged to instruct Lord Elwyn-Jones, as he later became, leading the noble Lord, Lord Hooson. That was a fairly formidable team.

One part of the job was working for nothing. In the side of the firm that I worked on, which was essentially advocacy and litigation, certainly when it came to tribunals, we worked for nothing—pro bono. There was a cross-subsidy from the more profitable work that my brother and other partners did in conveyancing, probate and so on which enabled us to carry out our service to a community that was not the most wealthy, as your Lordships can imagine, particularly at a time when coal mines were closing and steelworks were disappearing.

I later joined the Bar, with, at that time, some difficulty in crossing over the professions. In case your Lordships should think that I am critical of the Government’s proposals at a later stage in my remarks, I should say that it is not because I approach the proposals from a conservative point of view, thinking that all was well in the past. I have always advocated a fused profession and a common qualification for lawyers, advocacy and the disciplines of the Bar being something that should be adopted at a later stage when the person knows the client face to face and has an understanding of the problems that solicitors face.

Since I started, the language of the market has intruded into the legal profession. We used to talk of clients; now we talk of consumers and stakeholders. It was a profession; in the Bill, it is called a “legal service provider”. Advertising was regarded as touting and ambulance chasing; now it is acceptable and promoted. Under the Bill, legal services are to be sold along with a tin of beans. It is interesting that when the Co-operative Society expressed an interest in setting up a legal division in May, Bridget Prentice, the Minister in charge of the Bill in another place, said in a press release that we should perhaps call the Bill “Co-op Law”. It sums up the Bill’s ambition quite well.

We have moved to a consumer-directed legal profession. The proposal is to put the “consumer first”—a phrase in the title of the White Paper. I have

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always believed that the public interest comes first, but that is not at all the same thing. The Bill will be judged by its ability to maintain the essentials of the legal profession—its integrity and its independence. Contained in those essentials is the basic concept that the lawyer’s primary duty is to the administration of justice and to the court. That was starkly illustrated for me by a client, a barrister, who insisted on disclosing to Her Majesty’s coroner in another jurisdiction an adverse and critical internal report of an accident in which his client, a powerful utility company, was involved. His client sought through its in-house lawyers to withhold the report from the court and instructed him to put forward an edited and anodyne version. Following the basic principle of duty to the administration of justice, he refused. His health was wrecked and so was his career.

The duty to the client as consumer is vitally important although it is secondary to that prime duty that I spoke of. The duty to the client includes client confidentiality, the avoidance of conflicts of interest, and, importantly, the ability and willingness to challenge the various organs of state in whatever guise they impact upon the rights of the citizen. It is interesting that in Clause 184 an automatic exemption from the scope of the regulatory regime is given to government lawyers and that the Government have rejected recommendation 29 of the Joint Committee’s report, to remove that exemption. I would like the Minister to tell us who we complain to about government lawyers if they do not come within the proposed regulatory regime.

Perhaps I may say a word about independence. It was no surprise to me that the draft Bill put before us in July set out a list of objectives that did not include any reference to the public interest, the duty to the court or the independence of the profession. However, following the comments of the Joint Committee so ably chaired by the noble Lord, Lord Hunt, they are included now as either objectives or principles. It may be right to replace the patchwork of supervisors—what the noble and learned Lord the Lord Chancellor described as the “regulatory maze”—with a single, overarching Legal Services Board, as Sir David Clementi proposed in his report. But it must not be a creature of government.


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