UK: The Legal Services Bill

The proposed reform of the legal profession has taken another step forward following publication of the latest draft of the Legal Services Bill at the end of November 2006. We give a brief overview of the Bill, highlighting its more controversial aspects. Almost two years after the publication of Sir David Clementi’s Report in December 2004, the Government published the Legal Services Bill on 24 November 2006 ("the Bill"). Despite much criticism of the first draft of the Bill which was published in May 2006 ("the draft Bill"), most notably by the Joint Parliamentary Committee appointed to scrutinise it, the Bill contains little change of any substance.

The Bill establishes a new framework for the regulation of legal services in England andWales. This seeks to address the three main areas in which Sir David recommended reform: regulation; the complaints system; and the restrictive nature of current business structures.

Regulation of the whole legal services market will be overseen by the Legal Services Board ("the LSB"). The LSB will authorise Front Line Regulators (including the Law Society and Bar Council) to carry out day-to-day regulation, but will retain power to take steps to remedy any failings which are identified.

The LSB will have a duty to promote seven regulatory objectives, including supporting the rule of law and improving access to justice. More controversially, they include the protection and promotion of the consumer interest, despite the Joint Committee’s recommendation that the Bill should also protect and promote the public interest, which may not always coincide with consumer interest.

Another express objective of the Bill is to encourage an independent, strong and effective legal profession. The word "independent" did not appear in the draft Bill and has been added in response to widelyexpressed concern that the new regime threatens the independence of the legal profession. However, its addition has done little to stem the criticism which centres on the fact that the Secretary of State will appoint the Chairman and members of the Board, save for the Chief Executive who will be appointed by the Board itself.

It remains unclear how the LSB will operate in practice. Indeed, there is no statement in the Bill as to what the LSB will actually do. Whilst the Government has said in its response to the Joint Committee’s Report that the LSB will operate in partnership with the Front Line Regulators and would only use its powers if the Front Line Regulators were clearly failing, many, including the Law Society, would like to see a positive commitment in the Bill to such "light-touch" regulation. As this Briefing was going to press, the Government agreed to take another look at this part of the Bill.

The Bill provides for the establishment of the Office of Legal Complaints (the "OLC"), creating a single independent complaintshandling service for all branches of the legal profession designed to foster greater consumer confidence and provide quick and fair redress when things go wrong. Funded by the profession as a whole, the system will be free to consumers to whom the OLC can award up to £20,000 in compensation. Part of the new system involves the creation of a new Ombudsman scheme headed by the Chief Ombudsman, a lay person appointed by the OLC.

The OLC will deal with all types of complaint, although disciplinary matters will be referred to the Front Line Regulators to take action if appropriate. It will be interesting to see how the increased level of redress to £20,000 (compared with the Law Society’s current maximum of £15,000) affects the consumer’s choice in pursuing a remedy against his solicitor. Whilst in the past most complaints to the Law Society have resulted in only a small payment of a few hundred pounds, the available figures relate to a time when the maximum award was only £5,000 and when the Law Society did not deal with allegations of negligence as such. It is clear that, in the absence of legal aid, the OLC should provide consumers who have suffered losses of up to £20,000 with an affordable and quick remedy, although it is unlikely to have much impact on claims of higher value, or those involving complex legal matters.

It remains the case that there will be no external appeals process since the Government fears this will risk the objective of providing quick and fair redress. If the Ombudsman’s determination is accepted by the complainant, it is binding on both parties (whether or not the professional agrees) and no further legal proceedings can be pursued relating to the subject matter of the dispute. This may prove harsh for the professional potentially facing an award of up to £20,000 and a damaged reputation, whose only recourse will be judicial review, particularly when the same professional who has been cleared by the Ombudsman may still face a further challenge by way of civil proceedings by a dissatisfied, and possibly unreasonable, complainant.

For more on how the changes to the complaints system may impact upon solicitors, see the article, "Attack on all fronts?" on page 12 of this briefing.

Alternative Business Structures ("ABS")

Concerns were expressed in response to the draft Bill that the Government should follow Sir David’s recommendation and allow only the introduction of Legal Disciplinary Partnerships before considering the introduction of Multi Disciplinary Partnerships. However, the Bill continues to pave the way for ABS firms which will allow lawyers and non-lawyers to work together in providing legal services and for non-lawyers to inject capital into legal services firms. The Government considers that the speed of progress in this area is best left to the Front Line Regulators (and ultimately the LSB) who will assess whether the proposed ABS should be licensed to operate.

It remains to be seen whether most change comes from solicitors firms themselves, or from household names, such as the Co-op, setting up their own legal practices.

Another new and significant change introduced by the Bill is the proposal to extend the scope of legal professional privilege to include legal advice given by non-lawyers within the ABS firm. This is an interesting development at a time when the courts have tended to take a more restrictive approach to questions of privilege.

There is still time for changes to be introduced into the Bill during its passage through Parliament (and many will be lobbying for such change). The Bill is nevertheless already at the Committee stage in the House of Lords and is expected to receive Royal Assent in Summer 2007. It will, however, take a further 18 months or so to implement the new system and many more years, no doubt, until the full effect of the reforms is seen.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.