Legal Services Act 2007 (Appeals from Licensing Authority Decisions) (No. 2) Order 2011
(12 years, 5 months ago)
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Lord McNally
That the Grand Committee do report to the House that it has considered the Legal Services Act 2007 (Appeals from Licensing Authority Decisions) (No. 2) Order 2011.
Relevant documents: 29th Report from the Joint Committee on Statutory Instruments.
The Minister of State, Ministry of Justice (Lord McNally)
My Lords, for the convenience of the Committee I intend to speak to the two orders together.
On the appeals order, noble Lords may be aware that the licensing regime for alternative business structures contained in the Legal Services Act 2007 became operational on 6 October. In relation to that regime, the Law Society has had its application to become a licensing authority approved by the Legal Services Board. In accordance with the 2007 Act, before the Law Society can be designated as a licensing authority by order of the Lord Chancellor, it is necessary for there to be an appellate body with the power to hear appeals against its decisions made in relation to alternative business structures.
The purpose of this order is to modify the functions of the Solicitors Disciplinary Tribunal—known as the SDT—so that it can perform that function, subject to its designation as a licensing authority. As required by the 2007 Act, this order is made on the recommendation of the Legal Services Board following wide consultation and with the consent of the SDT and the Law Society.
In summary, the order makes provision for the SDT to hear and determine: decisions which are appealable under Part 5 of the 2007 Act and under the Law Society’s own licensing rules; the orders which the SDT may make, where that is not already provided by the Act itself; the orders for costs in relation to those appeals; and onward appeals from the SDT to the High Court. The set-up and operating costs of this SDT appeal mechanism will be funded by the Law Society and met by the licence fee payable by licensed bodies.
The Law Society has elected to use the SDT rather than the First-tier Tribunal as its appellate body because it wanted a consistent approach to appeals by all the firms which it regulates—both alternative business structures and traditional firms—and because the SDT has a wider discretion than the First-tier Tribunal to award costs. During a previous debate in the summer, noble Lords expressed concern about different licensing authorities using different appellate bodies to determine appeals from their licensing decisions. I think that point was made by the noble Baroness, Lady Hayter. I can see merit in using one appellate body for all appeals relating to alternative business structures, and that has also been the Legal Services Board’s preference. However, the structure of the 2007 Act means that the Legal Services Board can only recommend appeal routes to which the prospective licensing authority and the proposed appeal body consent. Therefore, licensing authorities cannot be forced to use a particular appeal route.
The Legal Services Board made its recommendation on the Law Society’s appeal route to the Lord Chancellor in August, and this order has been brought before the Committee at the earliest opportunity. As I have already said, the Legal Services Board originally consulted on a proposal that there should be a single appellate body to hear decisions of all licensing authorities and proposed the First-tier Tribunal for that role. However, the Law Society did not consent to that proposal and elected to use the SDT as its appeal body. The consequences of this decision impacted on the timing of the Law Society’s designation as a licensing authority and were explained to the parties concerned at the time.
Following the Law Society’s decision a new draft order was prepared and, in accordance with the statutory requirement, the consultation on the order was undertaken by the Legal Services Board. That consultation was completed in June and the order was finalised shortly after, but not in time for consideration by this House before the Summer Recess. Without the appeal arrangements being in place, it was not possible to designate the Law Society before the commencement of the alternative business structures regime in October. If approved, the order will provide the individuals and businesses affected by the Law Society’s licensing decisions with an opportunity to challenge these decisions through an independent and impartial appellate body.
I will now turn to the exceptions order. This is the second exceptions order to be laid this year. The purpose of this amendment is to extend the exceptions to the Rehabilitation of Offenders Act 1974 to include non-authorised persons with a restricted interest in alternative business structures—a point originally raised when we last discussed this by—
Lord Jones
The Minister has already referred several times to consultation. Perhaps now, or in his summing up, he will give any instances of consultation in Wales and with whom consultations may have been taking place.
Lord McNally
I will address that in my closing remarks.
I was about to say that the matter of the extension of this order was raised in particular by the noble Lord, Lord Hunt of Wirral, who is not in his place today. Noble Lords will be aware that the Rehabilitation of Offenders Act allows individuals lawfully to conceal certain spent cautions and convictions after a specified period of time has elapsed. The Rehabilitation of Offenders Act allows individuals to do this by declaring certain cautions and convictions as spent. Once a caution or conviction is spent, the individuals need not declare it when applying for most types of employment, seeking licences or applying for insurance.
The Government believe that individuals who have put their criminal past behind them should be given a chance to reintegrate into society. Research has consistently shown that employment reduces the risk of reoffending. By removing unnecessary barriers to employment, the Government are therefore demonstrating their commitment to clearing the way for ex-offenders to lead law-abiding lives. The Government also recognise the importance of protecting the public; therefore, there must be a balance. In certain specified circumstances, for example, it is right that employers or regulators are aware of an individual’s full criminal record history when they are determining the individual’s suitability to fulfil a certain role or carry out a specific activity. The exceptions order amending this Act seeks to achieve this balance towards public protection.
The exceptions order lists specific activities for which the employer, regulator or other relevant body is entitled to information about the spent cautions and convictions of persons applying to carry out that activity. These activities are those that present individuals with a particular opportunity to cause harm to the public or involve regular contact with a particularly vulnerable group. This includes work with children, as well as work in certain sensitive financial or legal positions.
Today, I am seeking to extend the exceptions order to those seeking to hold a restricted interest in an alternative business structure. During passage in this House of a previous amendment in an exceptions order in June this year, a number of noble Lords raised concerns about the risk of criminal ownership to alternative business structures. Following that debate, the Ministry of Justice expedited consideration of a business case, seeking further amendments to the exceptions order in relation to the provision of legal services. After careful assessment of the business case, we concluded that the exceptions order should be extended to persons who hold a restricted interest in an alternative business structure. This, the Government believe, addresses the immediate concern of safeguarding the new structures from the risk of criminal ownership—a point that was made at the previous debate by the noble Lords, Lord Hunt of Wirral and Lord Thomas of Gresford. It effectively captures those who might pose a risk of improper management of firms providing legal services, including the risk of the exploitation of access to client money.
Schedule 13 to the Legal Services Act requires all those who hold a restricted interest in an alternative business structure to be subject to a fitness-to-own test. Information about an individual’s spent convictions will form part of that test. Therefore a licensing authority, when determining whether or not an individual is fit and proper, will be entitled to ask questions about the individual’s previous criminal history, which will include any spent cautions or convictions.
While the Law Society and other consultees welcomed the decision to make this further exceptions order, they also expressed a desire for further exceptions to be made, in particular for non-lawyer managers of alternative business structures who do not hold a restricted interest. It is important to state that the framework of the Legal Services Act makes provision for a statutory approval process only for those persons who fall within Schedule 13. There is not a separate statutory provision which allows for the approval of non-lawyer managers who do not hold a restricted interest. Our analysis found that all non-lawyer managers will be captured by this order, unless the percentage of their interest or voting rights falls below the statutory threshold that constitutes a restricted interest under Schedule 13. Our analysis is that such persons would not pose a significant enough risk to the management of an alternative business structure to justify making an exception. However, if a licensing authority deemed it necessary—and if the Legal Services Board agreed to the change to its regulatory arrangements—it has the power under Schedule 13 to make licensing rules so that the threshold at which a person is considered to have a material interest in an alternative business structure is less than the 10 per cent threshold set out in Schedule 13.
I am satisfied that this order effectively addresses the immediate risk to alternative business structures of criminal ownership. As we go forward and begin to see alternative business structures in operation, the Ministry of Justice will consider any future business case to extend the exceptions order further, in the usual way. Should compelling evidence be presented that additional roles in relation to alternative business structures or the legal services sector should be added to the exceptions order, then the appropriate amendment could be made.
I am sure that noble Lords will appreciate that, when deciding whether or not the exceptions order should be extended to a particular role or activity, the Government must be mindful of the careful balance between access to information about spent convictions and the important goal of improving access to employment for offenders who have proven that they have put their criminal lives behind them.
I believe that the decision to extend the exceptions order only as far as necessary, to persons who hold a restricted interest in alternative business structures, will enhance the regulatory safeguards in relation to those seeking to hold a material interest in an alternative business structure, but will also ensure that this balance is maintained. I beg to move.
Baroness Hayter of Kentish Town
My Lords, I would like to speak on the first of the two orders. I no longer have formally to declare an interest as I no longer chair the Legal Services Consumer Panel, but it was in that guise that I had such an interest in the implementation of this part of the Legal Services Act and the availability of the alternative business structure—a sort of one-stop-shop—which has been very strongly supported by consumers of legal services.
As the Minister said, this order is part of the architecture for setting up the alternative business structure licensing system, and it will allow the SRA to become a licensing authority by the end of this year—sadly, not by 6 October as was originally hoped, but nevertheless within 2011.
As has been outlined, the order deals with appeals by applicants who want to be an ABS against the granting of a licence, which is effectively the permit to act as a recognised ABS, by the SRA’s licensing arm. Similar appeals about, for example, whether an individual is fit and proper to own an ABS, or to be the head of legal practice or a head of finance administration, and decisions to impose licensing conditions or the imposition of a financial penalty would also be heard. Under the system being put into place by this order, as the noble Lord, Lord McNally, has said, the existing SDT, although slightly adapted, will hear such cases rather than the First-tier Tribunal, which will be used by the other licensing authority, the Council of Licensed Conveyancers. As has been mentioned at an earlier stage, we regret perhaps that there is not a single body dealing with all such appeals in order that a real body of expertise and precedent can be built up, which would give certainty and consistency to this aspect of the new delivery service.
As regards the new service, I know that we do not often congratulate civil servants but the MoJ and the Legal Services Board have worked immensely hard to get all this quite complicated machinery into place. They should be congratulated. As part of that, it is disappointing that the only reason—I know that the Minister gave two—that the Law Society via its SRA arm has insisted on a separate route rather than the First-tier Tribunal is because of the tribunal’s own rules about awarding costs. At the moment the SDT, when considering solicitor conduct cases, has the power to award costs to be paid by the losing to the winning side. Therefore, the SRA’s costs are always met. Under the new process, having gone to the tribunal, the tribunal would hear not the case brought by the SRA but an appeal against the SRA decision. Thus, as the tribunals do not generally have the power to award costs unless it is a case with absolutely no merit, the SRA would have to meet its own costs. I fear that not using the First-tier Tribunal is the reason for this separate order today.
I think that it is in the interests of business or consumers to understand the rules as they develop. It is also probably not in the interests of the Government or the LSB, which needs to watch carefully over this new system. It is quite a risk to set up something like alternative business structures. The MoJ and the LSB will need to look over the new system of legal service provision and how it is bedding down. It would have helped to have a single appeals body regardless of which front-line regulator was handling the case.
However, the rules that the SDT will apply are to be welcomed. They are virtually the same as those in place for the First-tier Tribunal, which will help with consistency in the short term and perhaps allow for adjudications to be combined at a later date. With those comments, I certainly support the order.
Lord Dholakia
My Lords, I welcome both orders. The Minister will recollect that when the matter was first discussed here, we raised our concern and he was good enough to say that he would take the matter back, examine it and see what appropriate action was necessary. I endorse what the noble Baroness, Lady Hayter, has said. The Minister and his staff have worked very hard to effect those changes, which are certainly welcome.
The order sets out an independent appeal mechanism against a range of ABS decisions, which is right; for example, refusing an application for a licence, imposing a conditional licence, disqualifying a person from working in the ABS or imposing a financial penalty. The most interesting part is that appeals on these matters are to go to the Solicitors Disciplinary Tribunal. I am told that this helps the SRA to license alternative business structures from the new year onwards. I am also told that the SRA has found significant interest from organisations seeking to become ABSs. It has received over 500 inquiries. Examples of such organisations include private equity investors, claims management companies, the expansion of in-house legal departments, major retailers, accountancy firms and partnerships between non-lawyers and insurers.
I particularly welcome the second order as I am involved in promoting a Private Member’s Bill on the rehabilitation of offenders. The noble Baroness, Lady Hayter, hit the nail on the head in regard to this. In the end this is about consumer protection and looking at what information is available. I am delighted to support the measure because it sets out an interesting aspect in simple terms. This is a significant step in that not only will the SRA be able to issue licences, but also the Government have agreed to include non-lawyer owners and, in certain circumstances, the managers of ABSs in the exclusions of the Rehabilitation of Offenders Act 1974. That is right, and we very much appreciate the Minister’s support. Over a period of time this will ensure that all owners of ABSs will have to disclose all their previous convictions and cautions, which ultimately helps the consumer to understand what happens in this legal process.
Again, I thank the Minister for the action that he and his staff have taken on this, and we certainly support the orders.
Lord Bach
My Lords, I start by thanking the Minister very warmly for his clear and thorough opening remarks and description of these orders. I have little to say about them except to express the support of the Opposition for them both. There is no doubt that the Legal Services Act 2007 will have a major, if not profound, influence in the years to come on how legal services are delivered in this country. That was clear when the draft Bill was debated and discussed by a Joint Committee of both Houses under the chairmanship of the noble Lord, Lord Hunt of Wirral, and when the Bill went through your Lordships’ House some time afterwards. I think we can see the importance of that Act in the orders before us. Alongside it there are many sensitivities that surround the bringing into force of various parts of this Act, whether large or small. I hope—indeed I am sure—that the Government and the ministry are aware of and alive to those sensitivities in deciding which way to go.
I shall say a word about the first order, which deals particularly with appeals bodies. On the face of it, it is a shame that there is not to be a single appeals body—I agree with my noble friend Lady Hayter on that—but I suppose that this is one of the sensitivities that I am talking about. It is interesting to see in the Explanatory Memorandum the consultation outcome in relation to this order. For a consultation outcome, this has a dramatic and rather more exciting history than is normally the case in such consultations and it is quite clear that there has been toing and froing before the Government came forward with this order allowing the Law Society its way in this instance. I do not for a moment suggest that that was the wrong decision. However, a single appeals body is an attractive proposition, and I wonder whether over a period of time events might lead to it.
As for the Rehabilitation of Offenders Act 1974, I start by wishing the Private Member’s Bill under the charge of the noble Lord, Lord Dholakia, well. It is relevant because, with a senior government Minister present, maybe the Government themselves will have to play a role at some stage in making sure that his Bill, which is much delayed—this came up under the Government I was proud to serve in—gets on to the statute book in one way or another. It may be in the form of a Private Member’s Bill with all the difficulties that that involves both in this House and in another place, or with a little help from Her Majesty’s Government. Certainly, if the Government were to put their weight behind the Bill of the noble Lord, Lord Dholakia, we would support it too.
However, as far as this order is concerned I am most grateful—particularly to the Minister—for describing in detail why the universal opinion of the various groups that were consulted about this was not met in terms of a slightly wider group being subject to the exemption to the existing Act. He described it very adequately. Is there any concern that by leaving out that group of people there will be some difficulties down the road? It would be unfortunate if people who should be exempted from this Act were not exempted at this stage, and if the Government had to do it on a “first today and then tomorrow” basis.
These are important issues even though they are in orders that are going through this Committee pretty quickly. I have no doubt there will be others that involve the ABS and the other important results of the Legal Services Act 2007. Bearing in mind that the Act was passed under a different Government, we will do all we can to ensure that Act comes into fruition successfully.
Lord McNally
My Lords, I thank the noble Lord, Lord Bach, for that response. He is always very kind about how clear and thorough I am in explaining statutory instruments. He knows as well as I do that it is only because of the hard work of the people who sit behind me. I am very pleased that the noble Baroness, Lady Hayter, and my noble friend Lord Dholakia thanked the Ministry of Justice and the LSB for their work on this. It is exciting. I pay tribute to the previous Government. The alternative business structures will produce changes which, I suspect, will be mainly to the benefit of the consumer in the provision of legal services. What we are trying to do with these orders is to put the last pieces in place to allow them to function.
The noble Lord, Lord Bach, and the noble Baroness, Lady Hayter, both expressed the concerns that were reflected during the last debate—that we have not got a single route here, in that the solicitors have decided to have their separate body. Whether it will cause the problems of a lack of consistency, we will have to see. What I can assure noble Lords is that the LSB will be carrying out further work, and looking at appeal arrangements, and the MoJ will be working closely with the LSB in relation to this. I also understand the question put by the noble Lord, Lord Bach: have we gone too narrow in this extension? As I explained, I do not think we have. However, let us see. The concern expressed last time was that the alternative business structures may allow criminal elements in that would corrupt the new structures. We listened in this Committee and have brought forward extensions, and now think that we have got things right. Again, the LSB will follow the new structures as they go in. So far, only one new alternative business structure has been announced. The Co-op has beaten Tesco; perhaps it should now be called Co-op law rather than Tesco law.
This is an exciting development for which the previous Administration can take credit and which we have been pleased to help bring into being. We will discuss legal services in general in more detail when we get to the Legal Aid, Sentencing and Punishment of Offenders Bill in a short while. However, as the noble Lord, Lord Bach, and I have discussed before, legal services in general are in flux. The ABSs will provide an exciting new dimension to them.
On the question asked by the noble Lord, Lord Jones, I can only draw his attention to the fact that the consultations were carried out by the Legal Services Board for England and Wales and the Law Society of England and Wales. I am sure that both bodies carried out their consultations across the geographic areas of their responsibility. If he can draw to my attention the case for them not doing that, I will be happy to follow it up. However, since they are both bodies that have an England and Wales dimension and were both charged with wide consultation, my understanding is that they will have consulted in Wales.
Lord Jones
I am grateful to the Minister for fielding my query. I content myself with the reminder to him: he is the Minister and he will do the work.