The Legal Services Act 2007

The LSA 2007 was intended to have a major impact on the operation of the legal services market, from the right to conduct reserved activities through to regulation. It pursued the longstanding aim of successive governments to subject the established legal professions to greater competition.

A. Background to the Act

Much of the focus before the LSA 2007 was on multi-disciplinary practices, organisa­tions providing flexible, ‘one-stop shops’ for clients requiring a variety of professional services. In 1979, the influential Benson Report concluded that multi-disciplinary practices (MDPs) were not in the public interest.^[653] In 1990 the Courts and Legal Services Act permitted the Law Society to retain restrictions on solicitors entering unincorporated associations with other professionals like barristers.^[654] The rules of the professional bodies continued to prohibit such entities. The decades preceding the LSA 2007 were dominated by discussion of the merits of MDPs.

The Bar shared the Law Society’s concerns about loss of professional independence within MDPs,^[655] but was also anxious about other potential losses if the proposals went through. These included loss of independent barristers to MDPs, loss of cross­monitoring of the work of solicitors and barristers by each, loss of small local solicitors’ practices through unfair competition with larger units^[656] and loss of the public benefit of the ‘cab rank’ rule.^[657]

A cautionary note on the risks of MDPs was sounded by the Enron scandal.

and accountants facilitated the dishonest and ultimately illegal activities of the man­agers of the business. These professionals maximised returns from the business yet deceived the investing public as to the company’s true financial position. This raised some doubt about whether professionals embedded in non-lawyer organisations would demonstrate the necessary integrity or independence required to guard against massive financial catastrophe.

The Law Society’s resistance was probably eroded by the apparent inevitability of multi-disciplinary practice. In 1993 Arthur Anderson, a multi-national accounting firm, established a law practice of 100 lawyers operating alongside a separate account­ing business, with a projected income of £22 million.^[658] This arrangement avoided the Law Society’s ban on fee splitting by the maintenance of separate accounts.^[659] Perhaps, recognising the inevitable arrival of MDPs, and the risk that they would be domi­nated by accountancy firms, the Law Society formally ended its opposition to lawyer MDPs.^[660]

Shortly after the turn of the century, two reports sought elimination of restrictions on competition within the legal professions.^[661] The government appointed Sir David Clementi to carry out a review of the legal services market, including the restrictive nature of business structures. Clementi reported that some lawyers saw a conflict between lawyers as professionals and lawyers as business people. He disagreed, arguing that ‘access to justice requires not only that the legal advice given is sound, but also the presence of business skills necessary to provide a cost-effective service in a consumer­friendly way’.^[662]

Clementi was not unsympathetic to the legal profession.

B. Major Changes Introduced by the Act

i. Regulatory Objectives

Four of the eight regulatory principles set out in the LSA 2007 are particularly relevant to the organisation of legal services. They are:

---- improving access to justice;

---- protecting and promoting the interests of consumers of legal services;

---- promoting competition in the provision of legal services; and

---- encouraging an independent, strong, diverse and effective legal profession.

These objectives were to be achieved by general liberalisation of the market and increased competition. Some objectives were furthered directly by sections of the Act. Promoting competition to the legal services market was to be achieved by allowing non-lawyer ownership and management of organisations providing legal services. This apparently furthered the first two principles. The responsiveness of regulation to the new environment was to be promoted by a new Legal Services Board (LSB).^[665] The interests of consumers were to be promoted by a Consumer Panel.^[666] The LSB would be bound to consider any representations made by the panel.^[667] The assumption of the Act appears to be that a strong and effective legal profession will be achieved in the crucible of competition.

ii.

The LSA 2007 introduced a restructuring of the legal services market while preserving the identity of the legal professions. Legal professionals became ‘authorised persons’ under the Act, defined by their right to undertake the six ‘reserved legal activities’; advocacy, conduct of litigation, work on reserved instruments, probate work, notarial work and administration of oaths.^[668] Those entitled to carry on these activities are authorised, or exempt, in relation to that activity.^[669] Schedule 3 provides a list of such persons, for example, a person granted a right of audience by the court in a particular matter. The regulated persons were placed under a statutory duty to comply with the regulatory arrangements of the approved regulator.^[670]

The professional bodies became approved regulators in relation to the reserved legal activities they could authorise their members to undertake.^[671] However the LSA 2007 required that they ensure that the regulatory function operated indepen­dently of influence by the professional body.^[672] The professions therefore established regulatory arms. For example, the General Council of the Bar established the Bar Standards Board (BSB), the Law Society the Solicitors Regulation Authority (SRA) and the Chartered Institute of Legal Executives ILEX professional standards (IPS). The LSB was given responsibility to assist in the development of standards in regula­tion by the approved regulators and education and training.^[673]

iii. Approved Regulators as Licensing Authority for

Licensable Bodies (ABS)

The LSA 2007 provides that an entity may be licensed to carry out a reserved legal activity by an approved licensing authority.^[674] Such an entity is one where a manager or person with an interest in it, or who controls at least 10 per cent of the voting rights in it,^[675] is a non-authorised person.^[676] The LSB or an approved regulator may license such bodies to carry out reserved legal activities.

iv. New Business Structures

The Act modified Clementi’s recommendations on organisations by introducing ABS^[678] as well as LDPs. LDPs could comprise a combination of approved persons supported by non-lawyers such as IT experts or management personnel. The services offered must, however, be exclusively legal services. All the different kinds of lawyers could be equally involved in the management of the firm and participate in its profits. Non-lawyers could own or control up to 25 per cent of capital in the business. Non­lawyers could also be managers in the business, subject to proof of suitable character. From September 2011, firms appointing non-lawyer managers needed to apply to become an ABS.

ABS are the same as LDPs in that they can consist of lawyers of all types, and non-lawyers, offering all legal services, reserved and unreserved, but different in that they can offer related services, such as insurance or surveying. They can also be wholly owned and managed by non-lawyers. Non-authorised employees and managers of licensed bodies are under a statutory duty not to do anything that contributes to a breach of duty by authorised persons or licensed bodies.^[679] The LSA 2007 also places the Head of Legal Practice of a licensed body under a duty to do all that is reasonably practicable to ensure compliance with their duty to observe the rules of their regulator and to inform the regulator of breaches.¹¹² The Head of Finance and Administration is under a similar duty in relation to compliance with accounts rules.¹¹³

ABS might offer a ‘one-stop shop’ for selected services financed and managed by non-lawyers. The illustration was of a supermarket offering standardised legal services, dubbed Tesco-law.

A number of organisations, including the motoring organisation, the RAC, and Halifax Bank prepared to expand to take advantage of the Act.¹¹⁵ The proposals were said to be advantageous to consumers and lawyers. The benefit for consumers was that they would improve choice, reduce prices, improve services and provide better access to justice. The advantage for legal businesses was greater access to capital and finance, greater flexibility and, for individual lawyers, more choice of working environment.

Some essentially legal work, immigration advice, claims management and insol­vency, for example, is not regulated under the LSA 2007 but by other statutes. Others, will writing for example, are not regulated by any statute but may be indirectly regu­lated because the person carrying out the work is licensed by professional body.¹¹⁶

The LSA 2007 contained no conditions governing ABSs, leaving the details of the regime to be worked out by the LSB established by the Act. The LSB could grant the licences necessary to regulate ABS or establish a regulatory regime itself if no regula­tor came forward. In fact, the Law Society’s regulatory arm, the SRA, was granted the right to license ABS. LDPs were licensed from 2009 and ABS from October 2011 when a common code of practice covering solicitors in private practice and in employing organisations like LDPs and ABS came into force.

VI.