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though there was an exception, for instance, for trade unions and for lawyers
employed by law centres. If this rule were removed, the regulation of solicitors
employed by non-solicitors could be achieved by a system where individual
practitioners rather than business structures were regulated.
The consultants LECG for the OFT report Competition in Professions said that
there was some demand for MDPs among solicitors “ notably in the ¬elds of
property (solicitors with surveyors and estate agents), ¬nancial services (solic-
itors with accountants and ¬nancial advisers) and family law (solicitors and
mediators). In its view, the current restrictions on the formation of MDPs were
˜inhibiting competition, potential cost e¬ciencies, and customer choice and
convenience™.292 However, it admitted that ˜there could be a risk that a small
number of accountancy ¬rms could come to dominate the market for legal ser-
vices™, though this, it said, should be addressed by competition law against abuse
of a dominant position.

290
See ˜Multi-disciplinary Partnerships on Horizon after “Seismic” Vote™, Law Society™s Gazette,
20 October 1999, p. 3.
291
See J. Robins, ˜Basket Cases™, The Lawyer, 18 February 2002, p. 22; M. Patterson, ˜De-
regulation Cannot be Avoided™, Solicitors™ Journal, 5 April 2002, p. 300.
292
Paragraph 204, p. 62.
812 The legal profession


In its April 2002 statement on progress, the OFT said the Law Society had
been active in addressing the issues raised in its 2001 report. The Law Society
Council had adopted a recommendation from its Regulatory Review Working
Party to amend Practice Rule 4, subject to the implementation of measures nec-
essary for consumer protection. This amendment would allow solicitors
employed by non-solicitors to provide services to members of the public. The
Council was to be asked by the Working Party to reconsider a proposal, which
it had previously rejected, to remove the ban in Practice Rule 7 on sharing fees
with non-solicitor professionals. Legislation might be needed to enable the Law
Society to regulate non-solicitor partners of MDPs. These were concerns for the
Lord Chancellor™s Department to address.
The LCD, in its consultation paper In the Interests of Justice? issued in July
2002, devoted sixteen pages to MDPs and the provision of legal services by
lawyers employed by non-lawyers. It said that the Government™s position was
that unjusti¬ed restrictions on competition should be removed subject to the
need for adequate protection of the consumers. It asked for answers to thirty
relevant questions.
In its Response, the Law Society devoted ¬fteen pages to the topic.293 It antic-
ipated that liberalisation of the rules would bring potential bene¬ts both to con-
sumers and to the public. Capital injections whether through MDPs or
commercial organisations o¬ering legal services direct to the public could
increase competition. Signi¬cant capital investment could help solicitors to
market a range of methods of delivery of services to consumers. Increasingly
organisations would want to meet the diverse expectations of clients which
might lead to changes in traditional o¬ce hours, remote access, access to ser-
vices through the internet and the like.294 Many ¬rms were concerned that they
could not compete e¬ectively with well resourced non-quali¬ed providers of
legal services. Liberalisation of rules allowing input of venture capital would
help ¬rms to compete on a more level playing ¬eld. Some ¬rms already
employed other professionals such as accountants. With MDPs they could o¬er
such persons partnerships “ ˜giving them a real stake in the future prosperity of
their business™.295 If solicitors employed in commerce and industry could o¬er
legal services to the public, new career options would open for members of the
profession which might for instance be attractive to those wishing to work part-
time or to take career breaks.
Addressing ˜perceived risks™, the Law Society said MDPs could result in a
reduction of choice for consumers if monster accountant ¬rms swallowed solic-
itors™ ¬rms. It was even more concerned that the result could be a shrinking of
consumer access to legal services. Larger organisations would be likely to be
attracted to the pro¬table areas of work such as probate, personal injury and
professional negligence and to neglect less pro¬table ones a¬ecting people

293
Quality, Choice and the Public Interest, pp. 37“52 “ www.lawsociety.org.uk.
294 295
Ibid, para. 3.20, p. 42. Ibid, para. 3.21, p. 42.
813 Reform of the profession “ current issues


facing social exclusion, the poor, the homeless and those with mental health
problems. Solicitors practising in the ¬eld of social welfare law might become
increasingly thin on the ground. To minimise that risk the Government should
provide proper level of funding for those services.
A related issue was that larger commercial organisations were likely to take
tough commercial decisions as to the closing of satellite o¬ces in smaller com-
munities. In the same way that banks, building societies and supermarkets had
moved away from small market towns towards more central locations, so too
might large organisations o¬ering legal services. Technology would help to
bridge the gap through video conferencing and internet access, but a signi¬cant
proportion of clients were not ready for such developments, preferring face-to-
face contact with an adviser. Research suggested that under half the population
was willing to consider video conferencing or the internet to obtain legal
advice.296
The risks to the profession mirrored the risks to the public. ˜The liberalisa-
tion of practice, opening up competition, could lead to the gradual disintegra-
tion of the current high street network of ¬rms . . . this could have a signi¬cant
impact for consumers on choice of and access to legal advice™. A major concern
was whether MDPs and incorporated practices would provide the necessary
commitment to train young solicitors.
The Law Society™s conclusion was that, while it was likely to be possible to
provide a satisfactory regulatory framework for solicitors employed by com-
mercial organisations to provide services to the public by adopting the incor-
porated practice regime, there was a ˜strong possibility that such a development
could seriously damage access to justice, especially in rural areas™.297 It urged the
Government to undertake further research and to carry out detailed economic
analysis before taking ¬rm decisions.
In 2002 the European Court of Justice ruled that the Netherlands (and there-
fore the other member states) had the right to prevent lawyers from entering
into MDPs with accountants, though it accepted that this might restrict com-
petition in legal services.298 The Netherlands Bar had refused to allow two Dutch
lawyers to enter into partnership respectively with Arthur Andersen and Price
Waterhouse-Coopers on the ground that it threatened the lawyer™s duty to act
for clients in complete independence, to avoid all risk of a con¬‚ict of interest
and to observe strict professional secrecy. The judges found there was incom-
patibility between the advisory activities of the lawyers and the supervisory
activities of accountants who are not subject to the same duty of secrecy as legal
practitioners.299

296 297
Ibid, para. 3.30, p. 44. Ibid, para. 3.32, p. 45.
298
Case C-309/99 Wouters [2002] ECR I-1577 (judgment of 19 February 2002).
299
For a helpful and succinct general overview of these issues see A. Bogan, ˜Multi-disciplinary
Partnerships “ Is it a Brave New World or a Glimpse into Chaos™, 151 New Law Journal, 9 March
2001, p. 354; S. Young, ˜Multi-disciplinary Partnerships™, 152 New Law Journal, 29 November
2002, p. 1810. See also 8 International Journal of the Legal Profession, 2001, a special issue with
814 The legal profession


Incorporation and limited liability partnerships (LLPs)
Solicitors were permitted to incorporate by the Solicitors Incorporated Practice
Rules 1988. The chief advantage of incorporation is the protection it gives to the
personal assets of partners not involved in the actionable advice. Unlike accoun-
tants or surveyors, solicitors are not (yet at least) allowed to issue shares, to seek
outside investment or to o¬er directorships to non-solicitors.
Another important consideration is ¬nancial disclosure. Annual accounts
must be ¬led at Companies House.300
The issue of limited liability has been under consideration for some years
especially as a result of the fear of massive claims against lawyers™ and accoun-
tants™ ¬rms.301 Under the ordinary rules for partnerships, joint and several
legal liability of the partners is unlimited unless it is expressly limited. If
an attempt is made to provide for express exclusion, the cap may only be
for amounts over the minimum compulsory level of professional indemnity
cover (£2 million for partnerships and £3 million for limited liability partner-
ships).302
LLPs are new and are becoming extremely popular. The Limited Liability
Partnerships Act 2000 became e¬ective as from April 2001. An LLP is a form
of body corporate with members instead of partners. The members act as
agents of the LLP not of each other. In the event of a claim, only members who
assume a personal duty of care to a client are liable for the losses arising from
the LLP™s work. Innocent members are no longer liable. Moreover the
members™ liability is limited to the capital they have in the ¬rm. Private wealth
is therefore not at risk. An LLP does not have share capital so the potential
tension between directors and shareholders does not arise. The LLP can sue
and be sued. In some ways it is like a partnership. It is taxed like a partnership
in the hands of its members. The main disadvantage is the requirement of
¬nancial transparency. An LLP must ¬le ˜true and fair™ accounts audited to
generally accepted accounting standards “ including a requirement, if the total
divisible pro¬t exceeds £200,000, to show the income of the highest paid
member.303 (The requirements as to ¬nancial disclosure in the United States
are less demanding. Cli¬ord Chance became an LLP under New York law, it is

Footnote 299 (cont.)
four articles on MDPs: J. Fish, ˜Ethics, MDPs and the European Dimension™, pp. 103“8; E.
Deards, ˜MDPs: a Cause for Concern or Celebration?™, pp. 125“50; L.S. Terry, ˜MDPs:
Re¬‚ections from the US Perspective™, pp. 151“60; and A.A. Paterson, ˜Multi-disciplinary
Partnerships “ a Critique™, pp. 161“8.
300
See C. Davis, ˜Coming Aboard™, Law Society™s Gazette, 15 May 1996, p. 26.
301
In December 1995, for instance, the 150 partners of accountants Binder Hamlyn were ordered
to pay damages of £34 million for failing in their duty of auditing. (The Times, 1 December
1995 and 8 December 1995.)
302
On capping of liability see M. Ellis, ˜Cap Happy™, The Lawyer, 27 June 2005, p. 28.
303
See D. Furst and S. Gale, ˜Nowhere to Hide™, The Lawyer, 24 January 2005, p. 23. For an article
reporting on the accounts presented by Allen & Overy, the ¬rst of the ˜magic circle™ ¬rms to
release its LLP accounts, see The Lawyer, 11 July 2005, p. 2.
815 Reform of the profession “ current issues


said, in order to gain the bene¬ts without the disadvantage of ¬nancial dis-
closure.304)
By July 2006, no fewer than thirty-eight of the UK™s top hundred law ¬rms
had converted to LLP status and a signi¬cant number of other ¬rms were going
through the conversion process.305
LLPs are not subject to corporation tax. Limited companies are. Shareholders
of the company are taxed on the pro¬ts they extract whether as bonuses or div-
idends. The e¬ective rate of tax paid by members of an LLP is lower “ one of the
reasons why they are regarded by many as more attractive. Members of an LLP
are also entitled to claim tax relief against the interest on loans taken out for
contributions of capital. However, in the post-Clementi world when outside
investment in law ¬rms becomes possible (see p. 832 below), investors may
prefer to take an equity stake in a limited company.306


Conveyancing
Until the 1970s, conveyancing of residential property accounted for half the
solicitors™ profession™s income. (For small ¬rms, which are the great majority, it
is still a major factor today.307) Solicitors enjoyed a statutory monopoly. The
continuation of the monopoly was therefore felt to be of critical importance to
solicitors. In 1979, the Benson Royal Commission on Legal Services recom-
mended by ten to ¬ve that, on balance, it was in the public interest that the
monopoly continue “ mainly so as to give the consumer the protection of work
done by a person with the necessary skills. The Government at ¬rst accepted this
recommendation but subsequently it changed its mind. The Administration of
Justice Act 1985 permitted competition for solicitors from licensed con-
veyancers. The solicitors™ profession was deeply apprehensive about competiti-
ton from licensed conveyancers but this proved an unreal fear. The competition
turned out to be insigni¬cant. (In 1999 the Law Society stated that solicitors


304
There has been a good deal of writing on the pros and cons of LLPs. See R. Foster, ˜Limited
Liability Partnerships “ Could they Save your Home?™, 152 New Law Journal, 14 June 2002,
p. 919; C. Roberts, ˜Reaching the Limit™, The Lawyer, 17 May 2004, p. 29; B. Gripton, ˜Follow
the Leader™, The Lawyer, 17 May 2004, p. 35; P. Garry and P. Ashford, ˜Members Only™, The
Lawyer, 8 November 2004, p. 25; Q. Wastie, ˜Under Pressure™, The Lawyer, 8 November 2004,
p. 29; P.J. McDonnell QC, ˜Know your Limit™, The Lawyer, 27 June 2005, p. 36; C. Ives,
˜Structural Shift™, The Lawyer, 27 June 2005, p. 40; M. Shierson, ˜The Ghost of Business Past™,
The Lawyer, 17 October 2005, p. 20; I. Cooper, ˜LLP “ Limitless Preparation?™, 155 New Law
Journal, 28 October 2005, p. 1637.
305
The Lawyer, 2 October 2006, p. 35.
306
N. Carter-Pegg and B. Potter, ˜Limited Appeal™, The Lawyer, 2 October 2006, p. 35.
307
Figures for 2003 showed that for sole practitioner ¬rms it accounted for 40 per cent of fee
income and for two to ¬ve and six to twelve solicitor ¬rms it was the largest single source of
fee income at 19 per cent and 20 per cent respectively. By contrast, for ¬rms with 41“170
solicitors it was only 5 per cent of fee income. Overall for the profession it was 9 per cent.
(Law Society™s Strategic Research Unit, Solicitors Firms 2003 Research Findings, Table 1 “
www.research.lawsociety.org.uk.)
816 The legal profession


accounted for 95 per cent of the market share in the provision of conveyancing
services. Licensed conveyancers accounted for 4 per cent. The remaining 1 per
cent was attributable to DIY.308)
In 2006 there were 967 licensed conveyancers, of whom 315 had full licences
allowing them to practise on their own or in a partnership or a recognised body.
The rest were employed mainly by small ¬rms of solicitors or other licensed
conveyancers.309 (There were an estimated 15,000 solicitors working in the ¬eld
of conveyancing.)
In 1989 a much more potent threat emerged in the proposal in the Govern-
ment™s Green Paper that banks, building societies and other ¬nancial institu-
tions should be permitted to compete for conveyancing work with solicitors in
private practice “ though the ¬nancial institutions would be required to use
either solicitors or licensed conveyancers.310 The proposal caused consternation
among solicitors.
The proposal survived in the 1989 White Paper “ subject to several quali¬ca-
tions, all designed to promote a ˜level playing ¬eld™: (1) There would have to be
an identi¬ed solicitor or licensed conveyancer responsible for the conveyancing
part of the transaction. (2) The client would have to be o¬ered at least one per-
sonal interview with the solicitor or licensed conveyancer to review any possi-
ble con¬‚ict of interest between the client and the provider of the service. (3) In
order to restrict con¬‚icts of interest, a code of practice would prevent ¬nancial
institutions (˜authorised practitioners™) from providing services both to buyer
and seller. They would also be prohibited from o¬ering conveyancing services
if they (or a subsidiary or associated company) were also providing estate
agency services to another party. These restrictions could not be overridden
even by written consent. (4) The code of practice would prohibit ˜tying in™ by a
rule that conveyancing services should not be made conditional on other ser-
vices being undertaken or other services be made conditional on conveyancing
services being undertaken.
The signals were that the ¬nancial institutions would not want to compete by
using in-house solicitors or licensed conveyancers. They appeared likely to
compete instead by using existing local practitioners on non-exclusive panels.
The threat to the profession was that pro¬t margins would be cut even further
and that solicitors™ ¬rms that were not on the panels would lose much of their
conveyancing work.
The Courts and Legal Services Act 1999, ss. 34“52 enacted provisions which
permitted non-lawyers to become ˜authorised practitioners™ to undertake con-
veyancing work in competition with solicitors in private practice. The process
would be supervised by an independent regulatory authority (the Authorised
Conveyancing Practitioners Board) and be subject to regulations. The Board

308
Law Society, The Changing Legal Market Place, September 1999, p. 31, para. 7.4.
309
Website of the Council for Licensed Conveyancers “ www.conveyancer.org.uk.
310
Conveyancing by Authorised Practitioners, 1989, Cm. 572.
817 Reform of the profession “ current issues


was set up in 1991 and draft regulations were circulated for comment. But in
March 1992 the Lord Chancellor unexpectedly announced that he had decided
to postpone the implementation of the scheme because of a lack of demand
from potential providers.311 The reason appeared to be a lack of serious interest
in undertaking the work by the ¬nancial institutions for whom it was designed.
A little over ten years later the topic was reactivated when the OFT in its
report Competition in Professions (2001) recommended that ˜fresh considera-
tion should be given to implementing the parts of CLSA 1990, ss. 34“52 not so
far implemented, with a view to increase competition in the provision of con-
veyancing services™ (p. 17). Solicitors, it said, faced little competition. (The
report of its consultants LECG said that the wide variation in solicitors™ charges
for conveyancing work indicated a lack of competition.) Implementation of the
rest of ss. 34“52 ˜would allow, for example, banks and building societies to
provide conveyancing services™ (p. 17).
In its consultation paper, In the Interests of Justice in July 2002, the LCD said:
˜The Government favours opening up the conveyancing market further and in
principle is willing to incur the cost of establishing an independent regulator, if
that represents good use of public funds™.312 The conveyancing market was in
the process of considerable developments. The Land Registry already delivered
many of its services on-line and was moving toward a system of electronic
conveyancing. This ˜could ignite the interest of potential new providers of
conveyancing services™ (para. 8, p. 13).
On the other hand, the consultation paper suggested, the introduction of new
non-solicitor providers threatened the existence of small ¬rms. For ¬rms with
fewer than ¬ve partners, residential conveyancing represented nearly a quarter
(23 per cent) of gross fee income. Loss of that income could lead to ¬rms closing
or amalgamating which would be of especial concern in rural areas where there
were fewest ¬rms. The Government had made ˜rural proo¬ng™ a part of its
formal policy-making process.
The Law Society, in its response Quality, Choice and the Public Interest in
November 2002, drew attention to the range of protections enjoyed by solicitors™
clients including in particular compulsory indemnity insurance and full reim-
bursement from the Compensation Fund where there had been fraud by a solici-
tor. If banks and building societies could o¬er conveyancing, there was the
prospect of buyers and borrowers being required to use the in-house service with
the consequential loss of independent advice. The 1991 draft regulations had dealt
with this by requiring that the client must have a personal interview with a solic-
itor. The ¬nancial institutions disliked this as it would have reduced their pro¬ts.
The Law Society agreed with the LCD that the e¬ect of competition with
banks and building societies might be the disappearance of large parts of the
311
House of Lords, Hansard, 11 March 1992, WA col. 71.
312
Paragraph 6, p. 12. The cost of running the Board it thought would be some £1.3 million,
some of which would be recovered through a levy on fees charged by the Board to authorised
practitioners “ para. 15, p. 16.
818 The legal profession


network of solicitors™ ¬rms. It recommended that the only satisfactory vehicle
in regulatory terms to enable new providers to enter this market would be
through enabling employed solicitors to provide services to the employers™ cus-
tomers through ring-fenced incorporated solicitors™ practices “ provided that a
proper scheme of regulation for such bodies could be developed.
On 24 July 2003, in the course of announcing the setting up of the Clementi
Review, the DCA announced that pending the review, the conveyancing
market would not for the time being be opened up to banks and building
societies.313


Probate
Prior to the CLSA 1990, it was an o¬ence for anyone other than a solicitor, bar-
rister or notary to draft for a fee the papers on which a grant of probate or letters
of administration depend. (Probate is granted where the deceased left a will to
enable his a¬airs to be dealt with; if there is no will, the equivalent authorisa-
tion is called letters of administration.) The 1989 Green Paper proposed that
this monopoly should be abolished. It o¬ered two possible ways of achieving
more competition. One was to widen the class of persons who could apply for
probate for reward, the second was to abolish the restriction altogether.
The response to the Green Paper strongly supported the former rather than
the latter alternative and this was stated to be the Government™s decision. The
CLSA 1990, s. 54 stated that banks, building societies and insurance companies
could also do such work provided that they were parties to a scheme for com-
plaints and complied with any regulations made by the Lord Chancellor for
such a scheme.314 Section 55 would enable the Lord Chancellor “ subject to the
approval procedure set out in Sch.9 of the Act which requires him to consult the
Legal Services Consultative Panel and the President of the Family Division “ to
add to the list of approved bodies whose members could provide probate ser-
vices, but this scheme was not implemented.
The OFT™s report Competition in Professions (2001) recommended that fresh
consideration should be given to activating ss. 54 and 55 so as to promote com-
petition in this ¬eld. The LCD™s consultation paper In the Public Interest? said
again, as it had for conveyancing, that the Government favoured the opening
up of the market and was in principle willing to incur the cost providing that
represented a good use of public money. It invited views whether the method
of regulation proposed in s. 54 and the approval procedure in s. 55 were
su¬cient protection for consumers.

313
Competition and Regulation in the Legal Services Market, p. 9. One of the reasons given was
that the conveyancing market was no longer a monopoly and was already competitive.
(˜Providers are now ready to give ¬xed quotes to consumers who may shop around™.)
314
The Financial Services and Markets Act 2000 (FSMA) altered the reference to banks, building
societies and insurance companies in s. 54 to persons with permission under Part IV of the
FSMA to accept deposits or e¬ect contracts of insurance. This would bring in credit unions.
819 Reform of the profession “ current issues


The Law Society in its response (Quality, Choice and the Public Interest,
November 2002) urged that implementing ss. 54 and 55 would provide signi¬-
cantly weaker protections for the users of new providers than was available for
solicitors™ clients. It would confuse members of the public about regulators. The
Law Society was considering whether solicitors employed by bodies such as
banks and lending organisations should be allowed to o¬er probate service to
their customers through an incorporated solicitors™ practice, but basically the
existing arrangements worked well. The main problem, it suggested, was the
absence of safeguards against excessive fees charged by banks and trust corpo-
rations.
In the course of announcing the setting up of the Clementi Review the
Government stated that ss. 54 and 55 would be activated. Contrary to the view
of practitioners, the Government considered that there was no su¬cient risk of
detriment to access to justice or to consumers to justify excluding new providers
having access to the market. Practitioners would lose some work but it was
unlikely that it would be more than 7“8 per cent of market share which repre-
sented less than 1 per cent of solicitors™ overall gross income.315
The Government™s decision was implemented by statutory instrument which
took e¬ect in December 2004.316 The e¬ect is to allow approved bodies to
exempt non-lawyers from the monopoly previously enjoyed by solicitors by
virtue of the Solicitors Act 1974, s. 23. However, the Lord Chancellor™s post-
Clementi White Paper The Future of Legal Services: Putting Consumers First
stated that to date there had been no applications from any bodies for ˜approved
status™.317


Cost information and client care
The Solicitors™ Costs Information and Client Care Code requires that clients ˜are
given the information they need to understand what is happening generally and
in particular on (1) the cost of legal service both at the outset and as the matter
progresses and (2) responsibility for client matters. Clients should be given the
best information possible about the likely costs, including a breakdown between
fees, disbursements and VAT. The Code states that giving the best information
includes agreeing a ¬xed fee or giving a realistic estimate or giving a forecast
within a range of possible costs or explaining why none of those is possible. The
solicitor is supposed to explain on what basis charges are calculated. If charging
is on an hourly basis, that should be made clear.

315
Competition and Regulation in the Legal Services Market, July 2003, p. 11 and Annex A.
316
Courts and Legal Services Act 1990 (Commencement No 11) Order 2004, SI 2004/2959. For a
discussion of the issue see N. Cobb, ˜Plans for the Probate Market™, 154 New Law Journal,
2004, p. 1561.
317
Cm. 6679, October 2005, p. 84. For an assessment of the likely impact of the Clementi
reforms for wills and probate practitioners see N. Bird, ˜Putting Consumers First?™, 156 New
Law Journal, 24 March 2006, p. 492.
820 The legal profession


All solicitors™ ¬rms are under an obligation to have a written complaints pro-
cedure. Clients must be told the name and status of the person who is handling
the matter and who to contact in case they have a complaint. Failing to comply
with these rules has serious consequences. In Pilbrow v. Pearless De Rougemont
& Co318 the client paid £800 on account of the bill but then refused to pay the
balance of £1,800 on the ground that he had asked to see a solicitor but the
matter had been handled by someone who was not a solicitor nor a quali¬ed
legal executive. Despite the fact that the work had been done competently, the
court upheld the client™s refusal to pay the solicitors™ bill.
For the full text of the eighteen page Solicitors™ Costs Information and Client
Care Code, as amended in March 1999, see Law Society™s Gazette, 21 April 1999.
The full text of the Code can be found at www.lawsociety.org.uk.


Complaints
The handling of complaints against lawyers has been a contentious issue for
decades.319 Each branch of the legal profession had its own system320 and for
the past thirty and more years legislation has added an external monitoring
dimension.
The ¬rst form of the external dimension was the statutory Lay Observer
appointed under the Solicitors Act 1974 to review the way complaints against
solicitors had been handled. The Lay Observer existed from 1974 to 1990. In
1990 under ss. 21“26 of the Courts and Legal Services Act the concept was
expanded into the o¬ce of the Legal Services Ombudsman (LSO) whose remit
includes supervision of complaints against not only solicitors but barristers,
legal executives, licensed conveyancers and patent agents.321 Since the solicitors™
profession is by far the largest of these professions, it is not surprising that the
bulk of the LSO™s work concerns solicitors. In 2005“6, 89 per cent of the matters
dealt with by the LSO concerned solicitors, 10 per cent concerned barristers.
In her 2005“6 Annual Report the LSO said: ˜It is common knowledge that the
Law Society has for many years been struggling to provide an e¬ective
complaints-handling service. Ombudsman™s reports going back over a decade
have been critical of their performance™. Despite serious e¬orts by the Law
Society to ¬nd the right answer to the problem of establishing an e¬cient

318
[1999] 3 All ER 355, CA.
319
For a more detailed account of the story see the 9th edition of this work, pp. 782“6.
320
For a comparative study see M. Ross and Y. Enoch, ˜Complaints against Solicitors: A
Comparative Study of the Solicitors™ Complaints Procedures in Scotland, England and Wales,
and Northern Ireland™, Scottish Law and Practice Quarterly, 1996, pp. 145“58, 216“23 and
331“9.
For an evaluation of the role of the ombudsman ¬ve years on see R. James and M.
321

Seneviratne, ˜The Legal Services Ombudsman: Form Versus Function?™, 58 Modern Law
Review, 1995, pp. 187“209. See also M. Seneviratne, ˜Consumer Complaints and the Legal
Profession: Making Self-regulation Work™, 7 International Journal of the Legal Profession, 2000,
pp. 39“58.
821 Reform of the profession “ current issues


system, the criticisms, if anything, have become even sharper.322 (˜Once again
this year, the Ombudsman™s recommendations highlight repeated instances of
basic errors, poor administration, poor decision-making and poor service on
the Law Society™s part™.) By contrast, the Bar™s handling of complaints was the
subject of relatively little criticism.323
The Access to Justice Act 1999, s. 51 gave the Lord Chancellor the power to
appoint a Legal Services Complaints Commissioner with powers to set stan-
dards and targets for complaints handling and the power to ¬ne professional
bodies if they were not met.324 These provisions did not come into force imme-
diately. The Act provided that they would only be activated if it appeared to the
Lord Chancellor ˜that complaints about members of any professional body are
not being handled e¬ectively and e¬ciently™. In the event, the power was acti-
vated in October 2004 when the Legal Services Ombudsman, Ms Zahida
Manzoor, was given the additional role of Complaints Commissioner. The
Commissioner works with an Advisory Board set up in 2004. In 2006 she added
a Consumer Board.325
However, all of this was quickly overtaken by the latest developments stem-
ming from the recommendation of the Clementi Review that the handling of
complaints should be taken entirely away from the profession and given instead
to a new independent O¬ce of Legal Complaints. The Government accepted the
recommendation and the relevant provisions were included in the Draft Legal
Services Bill (May 2006) and the Legal Services Bill (November 2006). (See
further p. 838 below.) The O¬ce of the Legal Services Ombudsman and the
O¬ce of the Legal Services Complaints Commissioner would both be abolished.


EU lawyers “ reciprocal rights326
Foreign lawyers can practise law in England providing they do not falsely hold
themselves out to have quali¬cations which they do not have or undertake work
reserved to nationally quali¬ed barristers or solicitors.

322
See the LSO™s annual reports accessible at www.olso.org. For a brief bullet-point account of
the main events from 1990 to 2000 see the LSO™s annual report for 2000“1, pp. 9“12.
323
On the Bar™s system see M. Ross and Y. Enoch, ˜Procedures for Complaint against Counsel in
the United Kingdom: Internal Puri¬cation versus External Vindication?™, 19 Civil Justice
Quarterly, 2000, pp. 405“31.
In 2006, the Commissioner levied a ¬ne of £250,000 on the Law Society for unsatisfactory
324

performance. The ¬ne was ˜for the inadequacy™ of its plan to improve complaints handling.
(See the Commissioner™s annual report 2005“6, p. 15.) The Law Society™s President and the
Chairman of its Consumer Complaints Board said that the Commissioner™s targets were
˜unachievable and unrealistic™. (Law Society™s Gazette, 26 May 2006, p. 1.)
325
Law Society™s Gazette, 9 February 2006, p. 3. For the membership of both bodies see the
Commissioner™s annual report “ www.olscc.gov.uk.
326
Based on the information on the Law Society™s Website “ www.lawsociety.org.uk “ Overseas
lawyers in England and Wales. See also I. Katsirea and A. Ru¬, ˜Free Movement of Law
Students and Lawyers in the EU: a Comparison of English, German and Greek Legislation™, 12
International Journal of the Legal Profession, 2005, pp. 367“406.
822 The legal profession


There are three EU Directives that apply to European lawyers working in
Great Britain. The ¬rst is the 1977 Services Directive.327 This allows lawyers to
cross borders within the European Union and provide temporary services,
including advocacy services in local courts, but the host country can impose
conditions with regard to reserved litigation and advocacy work and can pro-
hibit the foreign lawyer from undertaking reserved conveyancing and probate
work. The UK permits a European lawyer to do reserved litigation and advo-
cacy work if instructed with a UK lawyer who is able to do that work. The
foreign lawyer operating under the Services Directive is barred from doing con-
veyancing or probate work.
The second is the 1989 Mutual Recognition of Diplomas Directive328 under
which each state requires lawyers applying for recognition to undergo certain
tests. In the case of the Law Society these are prescribed by the Quali¬ed Lawyers
Transfer Regulations 1990.
The third is the Establishment of Lawyers Directive which came into force in
March 2000 after being in gestation for more than twenty years.329 This
Directive has three main consequences:
• European Union lawyers have the right to practise law “ including the
law of another EU member state in which they are established “ under
their own professional title (Article 3). So a German lawyer working in
London can hold himself out to advise clients on English law. Equally,
English lawyers can practise under their title of barrister or
solicitor in other EU countries. The lawyer wishing to avail himself of this
must be registered with a competent authority in the host state. The relevant
competent authority in England would be the Law Society or the Bar
Council. If the work in question is a reserved activity (litigation and advo-
cacy) the lawyer must be instructed together with a UK lawyer able to do that
work.
• Once registered, EU lawyers have the right to representation in the profes-
sional association and have a full right to vote in elections.
• After three years of ˜practice of host state law™, under Article 10 of the
Directive, EU lawyers have the right to be admitted to the local profession
without examination. They have to make clear the nature of their
quali¬cations on their notepaper so that the public are not misled but the Law
Society may require some evidence that the lawyer has indeed been practising
English law during the previous three years. The foreign lawyer can choose
whether he wants to become a barrister or solicitor.330


327
77/249/EEC implemented in the UK by the European Communities (Services of Lawyers)
Order 1978, SI 1978/1910.
328
89/48/EEC implemented in the UK by the European Communities (Recognition of
Professional Quali¬cations) Regulations 1991, SI 1991/824 substituted by SI 2000/1960.
329
98/5/EC implemented by the European Communities (Lawyer™s Practice) Regulations 2000, SI
330
2000/1119. The Lawyer, 31 May 1999, p. 7.
823 Reform of the profession “ current issues


The Establishment Directive makes registration mandatory for EU nationals
working as lawyers in England on a permanent basis. By July 2006 only some
250 EU lawyers had registered with the Law Society under the Directive, a con-
siderably lower number than were thought to be working in this country.
Whether the relatively small number who have registered is because they did not
know about the requirement, or because of the cost (£825 in 2006) or for other
reasons was not known.


From the Clementi Review to the Legal Services Bill
Announcing the establishment of the Clementi Review, Lord Falconer said,
˜The legal services regulatory system is complex and fragmented. There is a wide
range of regulators with overlapping powers and responsibilities.331 . . . We
need to establish whether the system meets the demands of a modern, chang-
ing legal services market.™332
The terms of reference of the Review were: ˜To consider what regulatory
framework would best promote competition, innovation and the public and
consumer interest in an e¬cient, e¬ective and independent legal sector and to
recommend a framework which will be independent in representing the public
and consumer interest, comprehensive, accountable, consistent, ¬‚exible, trans-
parent, and no more restrictive or burdensome than is clearly justi¬ed.™
The Review had a small sta¬ but the report was clearly the work of Sir David
Clementi himself. There can be little doubt that his work will have a very
signi¬cant impact on the future of the legal profession and the delivery of legal
services here and very probably in other countries as well. The Legal Services
Bill is a major piece of legislation.333 If the old system it replaces was complex,
the new system can hardly be described as simple.334
The three main topics addressed in turn by the Clementi Review,335 the Draft
Legal Services Bill,336 the 82-page long Regulatory Impact Statement accompa-
nying the Draft Bill,337 the report of the Joint Parliamentary Committee exam-
ining the Draft Bill,338 the Government™s Response to the report of the Joint
331
According to the 133-page Scoping Study attached as Appendix B to the report (n. 205 above)
there were no fewer than 22 regulators involved in legal services.
332
DCA Press Release No. 310/03, 24 July 2003.
When ¬rst published in May 2006 the Draft Bill ran to no fewer than 172 pages with 159
333

clauses and 15 Schedules. The Bill published in November 2006 had swollen to 204 clauses
and 24 Schedules and was a staggering 304 pages long. No doubt by the time it reaches the
statute book, it will be longer still. For a critical appraisal see Kerry Underwood, ˜The Legal
Services Bill “ Death by Regulation?™, 26 Civil Justice Quarterly, 2007, pp. 124“33.
334
See for instance the 40 pages of Schedules 11 to 14 of the Bill dealing with the licensing rules
335
for Alternative Business Structures. www.legal-services-review.org.uk
336
www.dca.gov.uk/legist/legalservices.htm.
337
The Regulatory Impact Statement is on the same Website as the Draft Bill “ see n. 336 above.
It included a valuable six-page summary of expected ˜bene¬ts and costs™ “ i.e. pros and cons “
in relation to each of the main topics in the legislation.
338
www.parliament.gov.uk “ Business “ Committees “ Committees in Full “ Former Committees
“ Draft Legal Services Bill.
824 The legal profession


Committee339 and the Bill itself were: the regulatory system, the complaints
system and business structures for the provision of legal services. They are dealt
with here in that order.

The regulatory system
Clementi said that the current regulatory system was ˜outdated, in¬‚exible, over-
complex and insu¬ciently accountable or transparent™.340 The Law Society was
overseen in many of its functions by the Master of the Rolls, much of the Bar
Council™s work and that of the Council for Licensed Conveyancers and the
Institute of Legal Executives by the DCA, the Chartered Institute of Patent
Agents by the Department of Trade and Industry and the Faculty O¬ce over-
seeing notaries by the Archbishop of Canterbury. There were no clear princi-
ples or objectives underlying the system and it had insu¬cient regard to the
interests of consumers. Reforms had been piecemeal, often adding to the list of
inconsistencies (p. 2).
In his consultation paper Clementi set out two main regulatory models. The
¬rst, referred to as Model A, involved stripping out all regulatory functions
from the front-line practitioner bodies “ i.e. the Law Society and the Bar
Council. All their functions would be vested in a Legal Services Authority.
They would undertake all the regulatory functions: entry standards and
training, rule-making, monitoring and enforcement, complaints and disci-
pline.
Model B gave responsibility for the regulatory functions to front-line practi-
tioner bodies subject to supervision by a Legal Services Board (LSB). Model B ,
a variant of model B, would require the front-line bodies to separate their reg-
ulatory functions from their representative functions.
Clementi™s conclusion was that regulatory functions, other than complaints
and discipline, would best be served by Model B .341 The conclusion was
accepted by the Government and was given e¬ect in Part 2 of the Legal Services
Bill.
The Bill establishes the LSB.342 The Board must ˜so far as is reasonably prac-
ticable, act in a way “ (a) which is compatible with the regulatory objectives, and
(b) which the Board considers most appropriate for the purpose of meeting
those objectives™.343
The ˜regulatory objectives™, all of which save one were proposed in Clementi,
are set out in cl. 1 of the Bill: ˜(a) supporting the constitutional principle of the rule
of law; (b) improving access to justice; (c) protecting and promoting the interests
of consumers; (d) promoting competition in the provision of legal services within


339
www.dca.gov.uk “ Legislation “ Legal Services Bill “ Further background on the Legal Services
Bill “ Latest News.
340
The view of the Scoping Study, n. 205 above, cited by Clementi in his consultation paper
341
issued in March 2004, para. 2, p. 7. Clementi, p. 49, para. 70.
342 343
Clause 2 and Sch. 1. Clause 3(2).
825 Reform of the profession “ current issues


subsection (2);344 (e) encouraging an independent,345 strong, diverse and e¬ective
legal profession; (f) increasing public understanding of the citizen™s legal rights
and duties; (g) promoting and maintaining adherence to the professional princi-
ples™.346 The Joint Parliamentary Committee on the Draft Bill recommended
(para. 5) that in the Explanatory Notes it be made clear that the objectives were
not ranked in any particular order lest it be thought that they were ranked in order
of importance. This was adopted. (See Explanatory Notes, para. 26.)
The Board must have regard to the principles under which the regulatory
activities should be ˜transparent, accountable, proportionate, consistent and
targetted only at cases in which action is needed™ and any other principle it
thinks represents the best regulatory practice and the public interest.347
(Approved regulators are placed under the same obligation by clause 27(3).)
The ¬rst chairman and a majority of the members of the Board must be lay
persons. The Secretary of State348 would appoint all the members of the
Board.349 The Board must establish a Consumer Panel to represent the inter-
ests of consumers (cl. 8). (The Joint Parliamentary Committee (para. 17) rec-
ommended that there should be a parallel Practitioner Panel including
academics. This was not adopted.)
The Bill provides that named existing bodies are approved front-line regula-
tors.350 Other bodies may, however, apply to the Board to become approved reg-
ulators. If, having taken advice,351 the Board accepts the application, it would
recommend the Secretary of State to designate that body as an approved regu-
lator in relation to the stated activities.352 The Secretary of State is not obliged
to accept the recommendation.353


344
Subsection (2) de¬nes these as ˜services such as are provided by authorised persons (including
services which do not involve the carrying on of activities which are reserved legal activities)™.
Section 12 describes as ˜reserved activities™: exercising rights of audience, the conduct of
litigation, reserved instrument activities, probate and notarial activities and the
administration of oaths.(Sch. 2 de¬nes the reserved activities, Sch. 3 de¬nes the exemptions.)
Under s. 17 a person is an ˜authorised person™ if he is authorised to carry on the relevant
activity. The Joint Parliamentary Committee (para. 216) recommended that will writing for a
fee should be an additional reserved activity. This was not adopted.
345
The Joint Parliamentary Committee (para. 4) urged that ˜independent™ should be inserted
346
before ˜strong™. The last in the list of objectives was added by the Government.
347
Clause 3(3).
348
The term ˜Secretary of State™, rather than ˜Lord Chancellor™, is used throughout the Bill.
349
Schedule 1, paras. 1 and 2. The appointments would be made according to ˜Nolan principles™,
namely, in accordance with the Commissioner for Public Appointment™s Code of Practice
(Explanatory Notes, para. 38). The Joint Parliamentary Committee (para. 9) urged that the
Secretary of State should be required to consult the Lord Chief Justice. The Government did
not adopt this recommendation.
350
They are listed in Sch. 4 which also sets out the reserved activities in question in each case.
Both the Law Society and the Bar Council are listed as approved regulators with regard to
rights of audience, the conduct of litigation, reserved instrument activities, probate activities
and the administration of oaths.
351
Advice must be sought from the O¬ce of Fair Trading, the Consumer Panel, the Lord Chief
Justice and such other persons it considers it reasonable to consult.
826 The legal profession


Any alteration by an approved regulator of its regulatory arrangements takes
e¬ect only when approved.354 The Secretary of State can by order extend the
reserved legal activities but he can only do so on the recommendation of the
Board.355
The Bill gives the Board extensive powers to regulate approved regulators.
These include the power to:
Require information.356

Issue guidance.357

Set regulatory targets and monitor compliance.358

Direct a regulator to take speci¬c action.359

Direct a regulator to change its regulatory arrangements.360

Publicly censure an approved regulator.361

Impose a ¬nancial penalty on an approved regulator.362

• Intervene directly (through an ˜intervention direction™) in an approved regu-
lator™s regulatory functions.363
The Joint Parliamentary Committee urged that objective thresholds should be
established for the exercise of the Board™s powers and that it should only be able
to intervene to take over the functions of an approved regulator ˜if there is clear
evidence that serious damage might otherwise be caused to the regulatory
objectives™ (para. 178). The recommendation was not adopted.
The Secretary of State also has a variety of powers under the Bill. The Joint
Parliamentary Committee™s Report highlighted the matter of the minister™s
powers, which it set out in Appendix 9 of its report. Sir David Clementi told the
Joint Committee that one of his concerns about the Draft Bill was ˜How often
the Secretary of State seems to appear in this Bill as somebody who is making
decisions. I had envisaged that he would set up the framework, make sure the
objectives were there and then as far as possible stand back from it™. He thought
that ˜important points of public policy™ should fall to the Secretary of State,
whilst ˜more technical regulatory matters should fall to the LSB™. The Joint
Committee said it agreed that the Secretary of State had too much involvement
(para. 150). It recommended that each of the minister™s powers in the Draft Bill
be reconsidered and only retained if necessary (para. 155).
With one exception,364 the Bill does not provide for any right of appeal
against regulatory decisions by the LSB. The Joint Parliamentary Committee on
the Draft Bill recommended (para. 18) that there be a right to ask a judge for

352 353
Schedule 4, para. 16(2). Schedule 4, para. 17(1)(a).
354
Schedule 4, para. 19(1) provides for various possible forms of approval “ e.g. by the Board or
where the Board has decided that the alteration is exempt from the requirement of approval
or where it is an alteration made in compliance with a performance target direction given by
the Board under clause 31.
355
Clause 17 and Sch. 6. This applies equally to an order stating that an activity would no longer
356 357 358
be reserved (cl. 25). Clause 54. Clause 158. Clause 30.
359 360 361 362
Clause 31 and Sch. 7. Clause 31(3)(b). Clause 34. Clause 36.
363
Clause 40 and Sch 8.
827 Reform of the profession “ current issues


leave to appeal to the High Court. The Government did not accept the recom-
mendation.
If the OFT is of the opinion that the regulatory arrangements of an approved
regulator ˜prevent, restrict or distort competition within the market for reserved
legal services to any signi¬cant extent, or are likely to do so™, it may issue a report
to that e¬ect.365 The Board must consider the report and must notify the OFT
what, if any, action it proposes to take.366 If the OFT considers that the Board
has not given proper consideration to its report, it may give a copy to the
Secretary of State.367 He must then seek the advice of the Competition
Commission.368
The Secretary of State may direct the Board to take such action as he consid-
ers appropriate in connection with any matter raised in a report by the OFT.369
This is a potentially far-reaching power.
The Board has the power to make rules for a levy from approved regulators
to cover the costs of the Board and the O¬ce for Legal Complaints.370
Clementi considered that the costs of the LSB might be shared between the
Government and the profession.371 The Government rejected this approach.
The White Paper stated: ˜The Government starts from the position that the legal
profession should pay the cost of its regulation. The LSB will therefore make a
charge on all FLRs372 to pay for the costs of its regulation™.373 The professions
were understandably indignant that their members should have to pay for what
had previously been funded by the taxpayer. (And no doubt the cost will prove
to be even higher than Clementi estimated.374)
The Joint Committee said it was not convinced by the Government™s costings
of the new regulatory framework and urged it to revisit this question.375 It also
hoped that the Government would give further consideration to funding
the start-up costs of the new system. The profession, it said, should not be
expected to fund the public policy considerations currently funded by the
Government.376
But the Government declined to budge. Its Response said bleakly, ˜The
Government has made it clear that it proposes that the legal professions should
pay the full cost of these reforms. The basic principle is that those being regu-
lated should bear the cost of regulation™.377



There is an appeal against the imposition of a ¬nancial penalty (cll. 38, 94).
364
365 366 367 368 369
Clause 56. Clause 57. Clause 58. Clause 58(4). Clause 60(1).
370 371 372
Clause 166. Review, p. 89, paras. 35 and 36. Front-line regulators.
373
White Paper, para. 9.1. Clementi estimated annual costs of the new system would be £79.5
million. (Appendix to the Clementi Review.)
374
The Explanatory Notes published with the Legal Services Bill in November 2006 (paras.
505“9) stated that an analysis by PricewaterhouseCoopers(˜PwC™) of the cost of regulating
the legal services sector in 2005“06 estimated it to be around £97.4m. About £12m had been
spent by Government and £85.4m by the professional bodies. PwC calculated annual running
costs under the new regulatory framework at £87.9m, £9.6m less than at present.
375 376
Joint Report, Recommendation 55. Joint Report, para. 467, Recommendation 57.
828 The legal profession


Complaints
The concern about the complaints system identi¬ed by the Clementi Review
arose at di¬erent levels. At the operational level there was an issue about
e¬ciency especially with regard to the Law Society™s system,378 at the oversight
level there was concern over the overlapping powers of the oversight bodies and
at the level of principle there was the question whether lawyers should run the
system of handling complaints against lawyers.
Clementi recommended that a new O¬ce for Legal Complaints (OLC) take
over the handling of consumer complaints against all providers of legal services
regulated by the LSB.379 The OLC should ¬rst try to mediate. If this failed, the
OLC should investigate further and come to a decision. Its powers should include
requiring an apology, ordering a reduction in fees, requiring that work be re-
done and faults be remedied and ordering compensation.380 Complaints raising
issues of professional misconduct should be referred to the FLR381 but this should
not delay the granting of redress in respect of the consumer complaint.382
The Government stated in the White Paper that Clementi™s recommendation
was accepted. The maximum level of compensation that the OLC could award
would be £20,000.383
The relevant provisions giving e¬ect to the Clementi proposals on com-
plaints are in Part 6 of the Legal Services Bill (cll. 109“157). The OLC will be
accountable to the Board and will be funded through a combination of a general
levy on legal services providers and a ˜polluter pays™ mechanism.384 The Board


377
Response, p. 35.
378
In relation to the Law Society, ˜In the main, concerns have centred around the issues of
substantial delay in dealing with complaints, and questionable quality in terms of the
outcome. This was initially attributed to poor management of the complaints handling
process, and inadequate resourcing™ (Clementi, p. 57, para. 17).
379
Clementi, p. 66, para. 46. The Law Society™s reaction was positive. The Bar Council™s was
strongly negative on the ground that its procedures had not been criticised. In September
2006, however, the Bar Standard™s Board new independent commissioner said he intended to
overhaul the Bar™s disciplinary and complaints system to increase transparency and e¬ciency.
Robert Behrens, who was appointed in June 2006, said there were three key weaknesses in the
existing scheme “ the views of complainants were not taken into account enough, there was
not enough feedback to people the subject of complaint and the system was not transparent
380
enough (The Lawyer, 18 September 2006, p. 6). Clementi, pp. 67“8, paras. 49 and 50.
381
The Joint Parliamentary Committee urged that the Bill be amended to allow the OLC to
refer to the professional bodies complaints that raised both consumer and conduct issues
382
(para. 44). Clementi, pp. 68“9, paras. 52 and 53.
383
White Paper, 2005, para. 8.11; Legal Services Bill cl. 135. Under the old scheme, the maximum
until 2005 was £5,000. It was raised to £15,000 in January 2006. The average IPS award was
around £400.
384
The Joint Parliamentary Committee recommended that this should only apply to those found
guilty (para. 52). The recommendation was not adopted. The Explanatory Notes to the Bill
(para. 318) state: ˜It is envisaged that the ombudsman scheme rules . . . will apply a
combination of periodic (annual) fees for approved regulators and a “polluter pays”
mechanism to fund legal complaints handling. The “polluter pays” mechanism will mean that
the respondent of a complaint, whether the complaint is upheld or not so long as it is not ¬rst
excluded from the scheme, is charged for the handling of the complaint.™ This is the same as
829 Reform of the profession “ current issues


will appoint the members of the OLC in consultation with the Secretary of
State.385
Legal service providers will still be required to maintain in-house complaints
handling arrangements. These will continue to be the ¬rst port of call for con-
sumers. Save in exceptional circumstances, the OLC will not consider com-
plaints that have not been considered in-house.386 If the complaint is not
resolved in-house, consumers will be able to refer the matter to the OLC.
Complaints will be handled by caseworkers, who will attempt to mediate.
The OLC will only handle complaints about inadequate professional service.
Allegations of professional misconduct involving potential disciplinary matters
will remain the province of the FLRs.
The methodology for handling complaints will follow the Financial
Ombudsman Service model.387 Its essence is that the complaint is ¬rst passed
by an ombudsman to a caseworker who investigates and attempts to ¬nd a
mutually acceptable solution “ sometimes involving informal guidance from an
ombudsman. The caseworker cannot make a binding determination. The
Explanatory Notes state that an ombudsman would become directly involved ˜if
the parties do not accept the caseworker™s solution™ in which case ˜the case-
worker would submit the complaint to an ombudsman for binding determina-
tion™ (para. 361).

Alternative Business Structures
In its July 2003 consultation paper (Competition and Regulation in the Legal
Services Market)388 the Government expressed its support for the principle of
enabling legal services to be provided by alternative business structures. (˜Such
new structures would provide an opportunity for increased investment and
therefore enhanced development and innovation; for improved e¬ciency and
lower costs™.389)
The rules that restrict the way that legal services can be provided were
identi¬ed for the Clementi Review by the OFT:390
• Rules prohibiting partnerships between barristers and between barristers and
other professionals (lawyers and non-lawyers).
• Rules prohibiting barristers employed in solicitors™ ¬rms from becoming
partners.


the Financial Ombudsman Service scheme.
385 386
Sch. 15, para. 1. Clause 123.
387
For the procedures of the Financial Services Ombudsman see the annual reports “.
www.¬nancial-ombudsman.org.uk. The system was established under the Financial Services
and Markets Act 2000. It replaced the Banking Ombudsman, the Building Societies
Ombudsman, the Insurance Ombudsman, the Investment Ombudsman, the Securities and
Future Complaints Bureau and the Personal Investment Authority Ombudsman Bureau.
Commending the scheme he operates, Mr Walter Merricks, Chief Financial Ombudsman, said
they had reduced the unit cost of complaints to £433 in 2005 compared with the costs of the
Law Society™s system which were over £1,500 per case. (Law Society™s Gazette, 3 August 2006,
830 The legal profession


• Rules prohibiting solicitors from entering into partnership with other profes-
sions (lawyers and non-lawyers).
• Rules that (with a small number of exceptions)391 prevent solicitors in the
employment of businesses or organisations not owned by solicitors (e.g.
banks and insurance companies) from providing legal services to third
parties.
Clementi drew a distinction between Legal Disciplinary Partnerships (LDPs)
and Multi-Disciplinary Practices (MDPs). LDPs are law practices that permit
lawyers from di¬erent professional bodies, for instance, barristers and solici-
tors, to work together on an equal footing. MDPs are practices which bring
together lawyers and other professionals (e.g. accountants or chartered survey-
ors) to provide legal and other services to third parties.
Clementi recommended that LDPs be permitted but that any decision as to
whether MDPs be approved should be postponed until there had been experi-
ence with LDPs. LDPs should be a distinct ˜ring-fenced legal entity™. They
would be required to identify a lawyer in the ¬rm as Head of Legal Practice
responsible to the regulator for the ¬rm™s compliance in its conduct of legal
business with the regulatory rules. The manager of an LDP, however, could be
a non-lawyer. He too would have to be identi¬ed to the regulator. He would
have to sign a Code of Practice. Lawyers would have to be a majority in the
management structure of an LDP. Non-lawyer ownership of LDPs should be
permitted subject to a ˜¬t to own™ test. New capital should increase capacity and
exert a downward pressure on prices. New investors might bring new ideas
about how legal services might be provided.392 Outside investors would be pro-
hibited from interfering in individual cases and from having access to client
¬les.
However, the Government went considerably further than Clementi in
deciding not to restrict Alternative Business Structures to LDPs.393 The White
Paper stated that di¬erent types of lawyers (barristers and solicitors) and
lawyers and non-lawyers would be permitted to work together on an equal
footing in Alternative Business Structures (ABS ¬rms). ABS ¬rms would have
to be licensed by an authorised ABS regulator (or in the absence of any such reg-
ulator by the LSB itself). ABS ¬rms would be able to tap into outside invest-
ment.394
The potential bene¬ts for consumers, the White Paper suggested, would be
more choice, reduced prices, better access to justice, improved consumer
service, greater convenience and increased consumer con¬dence. The potential
advantages for providers included increased access to ¬nance, better spread of

388 389 390
p. 12.) CP (R2) 07/02, DCA. Paragraph 54. Clementi, p. 105, para. 2.
391
Notably law centres where lawyers and non-lawyers can work together on an equal footing.
392
Clementi, p. 115, para. 35.
393
This was unexpected. The Law Society™s Gazette of 20 October 2005 headed its page one story
831 Reform of the profession “ current issues


risk, increased ¬‚exibility, better prospects for high-quality non-lawyers and
more choice for new legal professionals.395
The White Paper said that the Government expected that the Board would
want to be satis¬ed that an FLR that wanted to regulate ABS ¬rms would have
rules that did not restrict di¬erent kinds of lawyers or lawyers and non-lawyers
from working together on an equal footing.396
The Joint Committee urged the Government to re-think its approach to Legal
Disciplinary Partnerships (LDPs) and amend the draft Bill to make provision
for LDPs without outside ownership.397
The Government™s Response accepted the recommendation and indicated
that the Bill would be amended to enable professional bodies to regulate enti-
ties that fell short of the full ABS model. (˜This would allow the Law Society,
for example, to remove the current restriction that requires a solicitors™ ¬rm
to be fully owned and managed by solicitors. It could instead provide for the
regulation of entities which are managed or owned by di¬erent types of
lawyers (e.g. a solicitor and a barrister) without the need for the issue of a
full ABS licence. This should reduce a potential burden on ¬rms and reduce
costs to the consumer, while enabling greater liberalisation in the delivery of
services™.398)
The Joint Committee found itself most troubled by the Government™s deci-
sion to go well beyond what Clementi had recommended with regard to alter-
native business structures. (˜We have been told about the potential for con¬‚icts
of interest in ABS ¬rms, both between lawyers and shareholders and between
lawyers and non-lawyers. We are worried both about the speed of approach and
the level of uncertainty about the impact of the reforms, particularly on access
to justice in rural areas and legal aid provision. Our over-riding concern is that
nothing in the reforms should have a detrimental impact on the quality of legal
services provided by a legal professional to a client . . . Given the level of uncer-
tainty about the impact of ABS provisions we urge the Government to use “less
haste and more care” and follow the Clementi Report in their approach™.) The
Joint Committee urged a step-by-step approach ˜starting with the least contro-
versial model “ partnerships of di¬erent types of lawyers without outside own-
ership or management “ before going into the deeper waters surrounding more
complex forms of ABSs where real issues of con¬‚icts of interest and uncertainty
of impact may arise™.399


394
˜Falconer Stuns with Green Light to MDPs™. White Paper, p. 39, para. 6.1.
395
White Paper, pp. 40“1. By contrast, in¬‚uential solicitor Andrew Phillips recommended that
the ABS provisions in the Legal Services Bill should be ˜thrown into the deepest hole in hell™.
Formerly Lord Phillips of Sudbury, he said that external ownership of law ¬rms would drive
high street ¬rms out of business and increase the size of legal aid deserts. His campaign
against ABSs was being supported by the Legal Aid Practitioners Group, the Sole Practitioners
Group and the Legal Action Group. (Law Society™s Gazette, 18 January 2007, p 4.)
396 397 398
White Paper, p. 43. Joint Report, Recommendation 32. Response, p. 22.
832 The legal profession


The Government™s Response said it did not believe that a prescribed
timetable was necessary or appropriate. (˜It should be for the LSB to make a
judgment whether a regulator has the appropriate arrangements in place to reg-
ulate and address the risks of various kinds of ABSs . . . There is no reason
arti¬cially to delay implementation and the bene¬ts to clients™.400)
But the Government had a change of heart. Speaking on the Second Reading
debate in the Lords on 6 December 2006, Lord Falconer said that the Bill would
permit the setting up of LDPs, with no non-lawyer managers or owners. They
would not be ABSs and so they would not have to wait for the setting up of the
Legal Services Board and the ABS licensing system. They could be established
as soon as the Act was enacted.401 (˜¦the fact that we are allowing [LDPs] to
emerge in advance of alternative business structures answers a key recommen-
dation from the Joint Committee™.402 It also, he said, re¬‚ected Sir David
Clementi™s evidence to the Joint Committee when he said, ˜I think LDPs are
walking and we should learn to walk before we get into the running and sprint-
ing involved in MDPs™.403
The Joint Parliamentary Committee said it was also concerned about the pos-
sible adverse international impact of the ABS structure. Evidence it had received
from the German Federal Bar suggested that ABS ¬rms with non-lawyer share-
holders and management by a majority of non-lawyers would be illegal there.404
(˜If this is the case, this would necessitate a fundamental re-think of this policy.
We are also concerned lest the provisions in the draft Bill would move England
and Wales out of step with other European countries™.405) The Government™s
Response said it did not agree: ˜It should be left to individual ¬rms, who know
their international markets and clients better than Government, to make their
own judgments™.406
ABS ¬rms were the subject of Part 5 of the Bill (cll. 70“108) and Schs. 10“14.
The Explanatory Notes407 stated that where non-lawyers act as partners, direc-
tors or owners of an ABS ¬rm, it would need to operate as a licensed body. An
ABS ¬rm is any structure that could potentially deliver a reserved legal
service,408 other than those currently permitted to do so. Examples, some of
which are currently permitted, include MDPs, partnerships, limited liability
partnerships, unlimited liability incorporated practices, private limited compa-
nies, public limited companies and mutual societies.409 Prospective ABS ¬rms
(called ˜licensed bodies™) would have to be licensed by a ˜licensing authority™.
Licensed authorities could be approved regulators (see above) that have also
been approved as licensing authorities. The Board itself could also be a licens-
ing authority.

399
Joint Report, para. 291 and Table 5, Recommendation 37.
400
Response, p. 25.
401
By virtue of the provisions in Schedule 16 (The Law Society, Solicitors, Recognised Bodies and
402 403
Foreign Lawyers), para 74 (Legal services bodies). Col. 1166. Ibid.
404
See to the same e¬ect ˜German Regulator Stokes Fears over Bill™, Law Society™s Gazette, 6 July
405 406
2006, p. 1. Joint Report, para. 329, Recommendation 41. Response, p. 27.
833 Reform of the profession “ current issues


Licensing authorities would have the power to adopt di¬erent rules for not
for pro¬t organisations and trades unions or to waive or modify the rules for
such organisations.410
The licensing rules for ABSs are set out in Schs. 11“14 “ a total of no less than
40 pages! They require, inter alia, that there be a designated Head of Legal
Practice411and a designated Head of Finance and Administration412 and that
both must be approved by the licensing authority. The licensed body must have
˜suitable arrangements in place™ to ensure that it, its managers and employees
comply with the duties imposed on them and that they maintain the profes-
sional principles set out in s. 1(3).
Schedule 13 sets out immensely detailed rules about ownership of an ABS.
Non-authorised persons may only hold what is called a ˜restricted interest™ in an
ABS with the approval of the relevant licensing authority.
An interest in a licensed body arises when a person owns shares in it, has the
right to share in its capital, is a partner in it, or is in some other way entitled to
share in its pro¬ts or obliged to contribute to its losses.
A ˜restricted interest™ is either ˜a material interest™ or ˜a controlled interest™. A
˜material interest™ in a company with shares arises when a person owns 10 per
cent or more of the shares in it or its parent company; or can exercise or control
the exercise of 10 per cent of the voting power in it or in its parent company;
or can exercise signi¬cant in¬‚uence over the management of the company or
its parent company by virtue of his shareholding or voting power.413 (The
licensing authority is permitted to specify a lower proportion than 10 per
cent.414)
A ˜controlled interest™ in a company with shares is any proportion of shares
speci¬ed in the rules that is greater than the material interest level. 415
The licensing authority must be satis¬ed that the person is a ¬t and proper
person to hold the interest and that his interest does not compromise adherence
by the licensed body to the professional principles.416In reaching that decision
the licensing authority must have regard to the person™s ˜probity and ¬nancial
position™, the person™s associates and ˜any other matter which may be speci¬ed
in licensing rules™.417
Schedule 14 deals with the licensing authority™s extensive power of interven-
tion when it suspends or revokes a licence.

NB The Legal Services Bill and resources for research
A provision in the Bill that could prove to be of importance was cl. 11 headed
˜Advice and research functions of the Consumer Panel™. This provided that the
Legal Services Board may request its Consumer Panel to carry out research for
the Board. Whether this proves to be signi¬cant will depend on the use made of
the possibility by the Board and the resources available for the purpose.

407 408 409
Explanatory Notes, para. 174. See n. 343 above. Explanatory Notes, para. 175.
410 411 412 413
Ibid, para. 180. Sch. 11, para. 11. Sch. 11, para. 13. Sch. 13, para. 3.(1).
834 The legal profession


Research is capable of assisting in improving standards of work as much, or
even more than, complaints or disciplinary systems. Complaints and discipli-
nary systems deal with the individual case. Research can discover how the area
of work in question is being handled generally from which lessons can be learnt
that apply to all practitioners in the ¬eld. The issues handled by complaints and
disciplinary system tend to be viewed by the rest of the profession as not apply-
ing to them. Research can identify systemic problems which can then be
addressed on a broad front.
If this is understood by the Legal Services Board, the addition of a research
dimension through the Consumer Panel could be of great value.


Clementi “ what has happened?
The Bar Council and the Law Society separate regulatory from representational
functions
Clementi was clear that the representational and the regulatory functions of the
FLRs had to be separated:
My terms of reference include a requirement to propose a framework that pro-
motes the public and consumer interest, promotes competition, promotes inno-
vation and is transparent. The framework needs to meet these criteria and be
seen clearly to do so. I do not believe that the current combination of regulatory
and representative powers, in particular within the Law Society and the Bar
Council, permit a framework that gets close to meeting this requirement . . . A
key recommendation of this Review is that the regulatory and representative
functions of front-line regulators should be clearly split.418
Both the Law Society and the Bar Council fell well short of good governance
practice for a regulatory body:
Regulatory bodies should have lay involvement in their decision making func-
tions. The Law Society has some lay involvement in certain sub-committees and
its main Council of 105 includes ¬ve lay members. The Bar Council has some
lay involvement in sub-committees, but the Council itself, with around 120
members, has no lay content. The size and make-up of both the Law Society
Council and the Bar Council are representative in nature. They are inappropri-
ate for a decision making regulatory body.419
Another problem was that the President of the Law Society and the Chairman
of the Bar Council held o¬ce for only one year. ˜Such a short term of o¬ce
might be appropriate for a representative role but not for a senior regulatory
position™.420
The choice was between creating two separate bodies (as with the General
Medical Council and the British Medical Association) or ring-fencing the reg-
ulatory function from the representational function within a single body.

414 415 416 417
Sch. 13, para. 3(2). Sch. 13, para. 4. Sch. 13, para. 6. Ibid.
835 Reform of the profession “ current issues


The Law Society™s response to the Clementi consultation paper accepted the
basic principle of separation of functions. In 2003 it had set up a Governance
Review Group chaired by Baroness Prashar, First Civil Service Commissioner.
In its Interim Report (May 2004) the Review Group had proposed a Regulatory
Board of some ¬fteen to twenty members, half of whom should be lay. All
members should be appointed through an independent procedure based on
merit.421 Clementi thought these were the right criteria for the LSB to apply.422
Clementi reported in December 2004. Within a month, in January 2005, the
Law Society™s Council voted to create two new bodies: one dealing solely with
consumer complaints and the other dealing with all other regulatory matters.
The representative functions would remain with a much smaller Council. The
Regulation Board would have sixteen members with a solicitor chairman and a
majority of solicitor members. The complaints board would have twelve
members with a lay chairman and a majority of lay members. A proposal that
council members could be members of either board was defeated. So too was a
proposal for some element of election of solicitor members.
Before the debate, the Lord Chancellor, Lord Falconer, told Council members
that reaching this decision ˜should allow you to retain the ability to regulate your
own profession™.423
When the issue was put to the profession in a postal referendum, solicitors
narrowly endorsed the decision by 52.4 per cent against 47.6 per cent.424
The new system went live as from 1 January 2006.425 (On 29 January 2007 the
Solicitors Regulation Board was renamed the Solicitors Regulatory Authority.)
The Bar moved in the same way. In April 2005 the Bar Council published for
consultation proposals to establish a new parent committee, the Bar Standards
Board (BSB) with signi¬cant lay membership and the barrister members of which
would not be members of the Bar Council. It would initiate proposals, provide an
independent supervision of all regulatory matters relating to barristers including
rule-making, discipline, casework, standards and quality. Its duty would be to
give preference to the public interest.426 The proposals were adopted.427 The new
structure became operational as from 1 January 2006. The ¬rst chair of the BSB
was Ruth Evans, chief executive of the National Consumer Council, who also
chairs the standards committee of the General Medical Council.

Prospects for Alternative Business Structures
At the time of writing, the new era of ABSs was only a talking point. However
the signs were that there was interest amongst potential clients. In September
418 419 420
Clementi, pp. 31“2, paras. 24“5. Ibid, p. 37, para. 33. Ibid, para. 34.
421
See N. Rose, ˜Split Personality™, Law Society™s Gazette, 15 July 2004, p. 20.
422 423
Clementi, p. 39, paras. 38 and 39. Law Society™s Gazette, 27 January 2005, p. 3.
424
155 New Law Journal, 16 September 2005, p. 1339. Only 15,000 of the 123,500 solicitors
balloted voted.
425
See N. Rose, ˜The enforcers™, Law Society™s Gazette, 27 July 2006, pp. 22“5.
426
Counsel, April 2005, p. ii.
427
The advertisements for the posts of Chairman and membership of the BSB and its four
836 The legal profession


2006 the Law Society™s Gazette published a report of research by Capita Legal
Services showing that 47 per cent of respondents to a survey would be happy to
use new providers of legal services for divorce, residential property, conveyanc-
ing and will-writing. The on-line survey was of 1,385 consumers and 240 small-
business owners. A question asked which non-lawyer bodies or institutions
would be trusted to provide legal services. The Citizens™ Advice Bureau was ¬rst
of the top ten choices. Seven of the ten were ¬nancial institutions such as banks,
building societies and insurance companies. The other two places were taken by
Tesco and the AA.428 Commenting on the results, an editorial warned it showed
that ˜unless traditional small and medium sized practices begin to market their
assets and to modernise, they could easily be swept aside™.429
In October 2006, the Halifax became the ¬rst major bank to enter the legal
services market with the launch of Halifax Legal Solutions o¬ering ˜everyday
legal products™ at fees that it claimed would be considerably lower than those
o¬ered by high street solicitors. The services would include discounted con-
veyancing, will preparation and a 24-hour legal helpline for which there
would be an annual charge of £89. Conveyancing would be provided by
HammondsDirect, a member of the Halifax™s ¬xed-fee conveyancing law ¬rm
panel launched in 2005 which had already been used by some 50,000 customers.
But the Halifax said that it had no plan to buy a law ¬rm when the Legal Services
Bill came into force.430
Legal expenses insurance ¬rm DAS announced that it too would be setting
up its own law ¬rm once the Legal Services Bill was enacted. Initially at least it
would concentrate on personal injury (PI) work. It handled around 15,000 PI
cases a year. As a starting point it would aim to deal with a quarter of those in
the law ¬rm. It would require a sta¬ of about 40.431


The Northern Ireland ˜Clementi™ takes a different view
By a coincidence, on the same day that the Legal Services Bill was introduced in
the House of Lords, the Northern Ireland equivalent of the Clementi report was
published in Belfast.
The Report (Legal Services in Northern Ireland: Complaints, Regulation,
Competition432) was the work of the Legal Services Review Group established by
Government in December 2005 to recommend to the Minister of Finance and
Personnel how the legal professions in Northern Ireland should be regulated.


committees went out in July 2005. (Counsel, August 2005, p. iv.)
428
Law Society™s Gazette, 21 September 2006, p. 3. Other providers mentioned included
newspapers, utility and telephone companies and football clubs! The AA stated in November
2005 that it was set to o¬er legal services to the general public when the market was opened in
2007. It planned to o¬er wills, conveyancing and personal injury work direct to the public.
429
(Law Society™s Gazette, 17 November 2005, p. 5.) Ibid, p. 16.
430
Law Society™s Gazette, 2 November 2006, p. 1.
431
Law Society™s Gazette, 4 January 2007, pp.1“2.
837 Reform of the profession “ current issues


The chairman of the Review Group was Professor Sir George Bain, former Vice
Chancellor of Queen™s University, Belfast.433
The terms of reference invited the Review Group to consider the Northern
Ireland system in light of the Clementi Report and the Government™s October
2005 White Paper.434 In his foreword Sir George Bain said:
4. . . . we fully accept Clementi™s principles and objectives for the regula-
tion of legal services. But we have not accepted some of his recommendations
for England and Wales because we believe they are inappropriate for
Northern Ireland. Northern Ireland is di¬erent “ di¬erent in size, di¬erent in the
nature and structure of its legal professions, and di¬erent in its history of regula-
tion. Hence di¬erent recommendations are needed “ recommendations that
capture the principles of good regulation but also recognise these other
di¬erences.
There are some 500 solicitors™ ¬rms spread around the Province and some 560
barristers who all practise from the Bar Library in Belfast.

Regulation
Bain found the Northern Ireland regulatory situation was broadly satisfactory:
8. We found that the legal professions have discharged their regulatory functions
in a reasonable manner. The regulatory failure in England and Wales has not
occurred in Northern Ireland. Nor is there the regulatory maze in Northern
Ireland that Clementi encountered in England and Wales. Hence simply to
apply Clementi™s proposals to Northern Ireland would not be appropriate . . .
9. We believe that the professions themselves should continue to discharge
regulatory responsibilities, but subject to enhanced oversight arrangements,
and, where it adds value, increased lay participation. Oversight should be applied
to both solicitors and barristers by a Legal Services Oversight Commissioner
helped by advice from the Lord Chief Justice for Northern Ireland.
The Oversight Commissioner should have an audit function in relation to pro-
fessional rules. The regulatory and representative functions of the professional
bodies did not need to be separated for general aspects of regulation though
they should be separated for complaints handling.

Complaints
In regard to complaints, Bain said:
Although we found that the professional bodies have generally discharged their
responsibilities in this area fairly, we identi¬ed a number of areas where the
system requires to be strengthened in the public and consumer interest. Given
the relatively few complaints made about lawyers in Northern Ireland, we

432
23 November 2006. Accessible on www.dfpni.gov.uk.
433
The seven other members were: a QC, a former President of the Law Society, a legal academic,
the Director of the Law Centre, an academic economist, an accountant and the policy head of

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