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Lord Thomas of Gresford: My Lords, we on these Benches very much support the noble Lord in this amendment. He is not suggesting that alternative business structures should be banned for ever, but that there should be a proper investigation of their efficacy and, in particular, whether they are in the public interestthe consumer interestthat this Bill is supposed to be about. A number of groups will benefit from alternative business structures. I have already referred to it in my earlier remarks on the amendment which I moved. It is in the interests of large, commercial firms of solicitors to have additional capital and arms to their businesses. Since it is very influential, it is no surprise that the Law Society is not objecting to alternative business structures.
It is also in the interests of commercial organisations which are not legal, which can add a legal arm to their activities nationwide. It may be a supermarket, an insurance company or possibly a building society which could have within its organisation an office with a salaried lawyer who is creaming off the best of the business such as he decides to deal with away from solicitors who are providing a wider service. That is the issue.
I am not surprised that this Government are supporting the fat cats of the legal profession, but they might take into consideration the people who are working in the community interest in rural areas who will be badly affected by the Bill. I very much support a wider investigation of the merits of the schemes.
Lord Kingsland: My Lords, I agree with the noble Lords, Lord Neill of Bladen and Lord Thomas of Gresford, that, by a very large margin, the most important factor that ought to be taken into account in relation to Part 5 is the potentially adverse social consequence of its implementation without very close monitoring of the geographical impact of the arrangements. I know that the Government understand that, but I am not confidentI may be after the noble Lord speaksthat they have made sufficient provision for that, although their acceptance of the amendment on access to justice is very important.
The wider picture is equally troublesome. The noble Lord, Lord Neill of Bladen, made an observation about the international consequences of Part 5. He has rightly quoted the serious concerns expressed by the German equivalent of the Law Society. I know, as many others do, that there are also serious concerns about this in the American Bar Association. We face a possibilityto put it no higherthat firms licensed under Part 5 may not be able to sell their services out of the United Kingdom into these countries.
There are particular considerations about outside share ownership and multi-disciplinary partnerships which have been severely under-researched by the Government. For example, the measures to identify who owns or who might own a particular firm of solicitors need to comprise much more sophisticated ways of identification. It may be that the ultimate owner of a legal services firm will be someone against whom that firm is at that moment litigating. It may be the intention of this, as yet, unknown owner to compromise that litigation in the favour of another interest. Is the Minister really confident that the ownership provisions can satisfactorily identify someone who buys a solicitors firm with that intention?
What about the manner in which a solicitors firm is bought? From reading our newspapers, we know about the private equity industry. Quite often, private equity companies buy other firms, largely by the issue of debt against the assets of the target. Supposing a private equity firm comes along and buys a solicitors firm issuing 90 per cent plus of debt to buy the firm. The future performance of that solicitors firm will depend enormously on its cash flow. What pressures will the outside shareholder exercise on the lawyers in that firm to make sure that that cash flow is forthcoming to pay off the debt? There seems to be nothing to control the way in which the financial structures of these firms ought to be regulated. For example, should the licensing authority have rules about the debt equity ratio of solicitors companies that are bought?
I see no evidence that the Government seriously considered the Enron factor in relation to multi-disciplinary practices or cross-selling by different professions which form part of one firm. I know that the noble Lord will be familiar with the problem; it has been talked about to a considerable degree in the proceedings on this Bill in your Lordships' House and I do not intend to elaborate on it.
Lord Kingsland: My Lords, allow me to compose myself before I continue. Once the Bill becomes an Act, the matter will be entirely in the hands of the Legal Services Board. From the moment the Bill becomes law, the Government will not be able to intervene. How will they be confident that the Legal Services Board will take these issues seriously, which I think is what lies behind the intervention made by the noble Lord, Lord Neill of Bladen? He wants to be confident that the Legal Services Board will investigate all these matters before 2011.
Although we on these Benches supported the sunrise clause at an earlier stage, we are hesitant about supporting it again this late, provided the Government can give us some real assurance that these issues will be properly confronted and dealt with between now and 2011. Otherwise, the consequences could be dire.
Lord Mackay of Clashfern: My Lords, I would be glad if the Minister could tell us what the Government know about the situation in other member statesGermany has been referred toand of course the United States. Are there any legal impediments in those countries to lawyers using this kind of structure?
Lord Hunt of Kings Heath: My Lords, this has been a short but extremely interesting debate and I am grateful to the noble Lord, Lord Neill, for allowing us to discuss the matter. Perhaps I may say that he looks as lively and fresh as ever while bringing this issue back to our attention, and the challenge is for me to assure the House that with the implementation of the Bill, particularly alternative business structures, there will be monitoring and evaluation. There has been an element of a Second Reading debate on the principle of ABS and I shall not go down that path too far, but I should say that the Government do not believe that this is about responding to fat cats who want to make a lot of money; rather it is about ensuring that the public will benefit. We think that there are real advantages in enabling firms to offer a mix of legal and other
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Before I turn to the questions of research and the sunrise clause, we think that the Bill contains safeguards to prevent improper influence by non-lawyer owners and managers as a result of commercial pressures such as debt. Under Clause 90, non-lawyers are expressly prohibited from causing lawyers to breach their professional conduct duties, such as acting in the best interests of their clients, and lawyers are under a statutory duty to comply with professional conduct rules. On certainty over ownership, my advice is that the provisions in the Bill are robust, having been modelled on the provisions that are effective in the financial services sector. On the question of shareholder influence, lawyers professional conduct duties are fully protected. As I have said, non-lawyers, shareholders, managers and employers are prohibited from causing breaches of lawyers duties, and can be disciplined or even prohibited from future involvement in alternative business structures if they violate the prohibition.
The noble Lord, Lord Neill, asked about the attitude adopted in other countries. I do not have information about whether ABS structures are used in other member states, but the main point to make is that ABS is facilitative. If similar structures are not allowed elsewhere, ABS firms based in this country will need to take account of that when considering whether to expand abroad. If there is a problem, they can set up alternative organisations that comply with local rules. However, on the substantive point, my understanding is that there are no international laws or obligations which make the regulatory framework we are proposing incompatible with them.
Just in time, I understand that legal services providers in New South Wales have been permitted to incorporate and provide legal services to clients either alone or alongside other service providers who may or may not be legal services providers, and other Australian states are apparently following the lead of New South Wales. It is not often that I quote Australia as an example of good practice, but on this occasion I do so.
I can reassure the House that the Legal Services Board has a duty to report annually on how it has met the regulatory objectives, as well as approving and monitoring licensing authorities policy statements. Clause 110 adds a specific requirement that the annual report must address the effect of ABS activity on the regulatory objectives. So there will be full scrutiny of the development of alternative business structures. I know that noble Lords will want this matter to be kept under full review, and the statutory provision making it the duty of the Legal Services Board to report annually will ensure that this is done. The noble Lord, Lord Neill, has asked me to say that ABS will be kept under close review, their economic
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Lord Neill of Bladen: My Lords, I thank the Minister for that reply. I have to confess that I am not wholly reassured. On the foreign dimension raised by the noble and learned Lord, Lord Mackay of Clashfern, I read into the Ministers answerperhaps too cynicallythat there has been a total lack of interest in the situation in other countries. The only example he has been able to come up with is that of New South Wales. It would be odd if the Dutch fully approved of what the Germans disapprove of, or odd that the French are perfectly happy with these proposals and would like to have partnerships of this sort. I feel that his attitude towards this information confirms a lack of diligence in relation to the gravity of the situation, one that has been fully flagged up here over a number of months. At the risk of being recalcitrant, I should like to test the opinion of the House.
I now introduce amendments made in the other place which deal with appointments to and dismissals from the Legal Services Board. This is an important question and I have no doubt we will have a good debate. It goes to the heart of the independence of the legal profession and, quite rightly, this part of the Bill has been the subject of a great deal of scrutiny and debate at almost every stage of the Bills passage.
I have no doubt whatever that the Lord Chief Justice will add a great deal to the process of appointments. He is a man of the utmost integrity, independence and experience, and these attributes will be invaluable when making appointments to the board.
The Government also wish to highlight the importance of adherence to best practice in making public appointments and the importance of the external oversight and regulation which is exercised by the Commissioner for Public Appointments. This provides an assurance that proper procedures have been followed and that not only will appointments be made transparently and independently but those making such appointments are fully and properly accountable to Parliament. That is why we amended the Bill so that the Lord Chancellor must consult the Lord Chief Justice on appointments and removals. We think that gets the balance right and that we have achieved the best of both worlds: the contribution of the Lord Chief Justice on the one hand and the need to ensure adherence to best practice in making public appointments on the other. We ensure that appointments and dismissals benefit from both of those attributes, andit is important to stress thisthat the code of practice of the Commission for Public Appointments says that public appointments should be made fully by Ministers. That ensures an accountability to Parliament that could not otherwise be replicated if someone other than a Minister had an effective veto on appointments.
I think it will be helpful if at this stage I outline how the Lord Chief Justice is to be consulted. My ministerial colleague, Bridget Prentice, has written to the Lord Chief Justice to consult him on the process
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The Government have already given an assurance in the other place that it is entirely a matter for the Lord Chief Justice to decide whether he makes public any disagreement with the Lord Chancellor over the appointment of the chair and members of the board. So far as the Government are concerned, that will not only extend the consultation about the person to be appointed but will also embrace the arrangements for the process leading up to it.
I thought it would be helpful to describe how the Lord Chief Justice is to be consulted. I hope I have identified that this is a serious consultation where the weight of the Lord Chief Justices views will be given the consideration it undoubtedly deserves.
The noble Lord said: My Lords, I shall speak to Amendments Nos. 81A to 88A as well as these amendments, since exactly the same point applies to all of them. I was glad to hear the Minister say what importance is attached to the office of the Lord Chief Justice and his view. We want to take that one stage further and restore the matter to where it was agreed in this House earlier this year. We want to see a requirement in the Bill for the concurrence of the Lord Chief Justice in the appointment or removal of top officials such as the head of the LSB. Any law student will know that consultation is not enoughyou can consult, and comply with, the decision of Mr Justice Webster in 1986 in a case reported in all the textbooks, but you are free to disregard anything he may say.
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