Legal Services Act 2007 (Appeals from Licensing Authority Decisions) (No. 2) Order 2011

Baroness Hayter of Kentish Town Excerpts

Tuesday 15th November 2011 Grand Committee

[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.