Legal Services Act 2007 (Appeals from Licensing Authority Decisions) (General Council of the Bar) Order 2018

Baroness Vere of Norbiton Excerpts

Thursday 1st February 2018 Lords Chamber

Moved by

[Baroness Vere of Norbiton]

That the draft Orders laid before the House on 19 December 2017 be approved.

[Baroness Vere of Norbiton (Con)]

My Lords, while these statutory instruments are in the name of the General Council of the Bar, they relate to the functioning of the Bar Standards Board. In accordance with the Legal Services Act 2007, the Bar Council has delegated its regulatory responsibilities to the BSB. At their heart, the statutory instruments are designed to ensure that the BSB can regulate more effectively and efficiently. I confirm to the House that the Legal Services Board has consulted on and considered the proposals and made formal recommendations to the Lord Chancellor that these orders are made.

The first order is being made under Section 80 of the Legal Services Act 2007 and makes provision enabling the First-tier Tribunal to hear and determine appeals in relation to decisions made by the BSB in its role as a licensing authority. This is a straightforward matter. The BSB was made a licensing authority in February 2017, and on a temporary basis an appeal route to the High Court was established. However, it is accepted by all interested parties that it is more appropriate that the First-tier Tribunal determines any appeals against the BSB in its role as a licensing authority. The First-tier Tribunal has a jurisdiction in the General Regulatory Chamber and judges with experience in considering regulatory appeals. Similar orders have been made in the past in respect of the Council for Licensed Conveyancers, the Chartered Institute of Patent Attorneys, the Chartered Institute of Trade Mark Attorneys and many more.

The second order is being made under Section 69 of the 2007 Act and modifies the functions of the BSB in six main ways. It gives the BSB the power to make regulations or rules allowing for appeals to the First-tier Tribunal; this is in effect the counterpart to the Section 80 order already discussed. It gives the BSB, in its role as an approved regulator, the same intervention powers that it has as a licensing authority. And it gives the BSB powers to make rules in relation to information gathering; disciplinary arrangements, practice rules on engaging disqualified individuals; and compensation arrangements. These provisions will place the BSB’s regulation of barristers on a statutory footing. Currently there is no statutory basis for much of the regulation of individual barristers or entities by the BSB. Barristers are regulated under a non-statutory regulatory regime, with barristers in effect consenting to be bound by the BSB’s rules, thus establishing a contract between them. This arrangement is underpinned by a series of agreements between the Bar Council, the Inns of Court, the Bar Tribunal and Adjudication Service and the BSB.

In an ever-changing legal services market, a contractual mechanism of regulation is not sustainable in the long term. The legal services market continues to evolve with innovative businesses—with different and novel business models—entering the market at a rapid rate. Since February 2017, the BSB has been able to license alternative business structures, in addition to regulating barrister entities and individual barristers. As of today, the BSB regulates 80 barrister entities and seven alternative business structures. The LSB and BSB believe that the interests of consumers and the public would be better protected if many of the BSB’s arrangements for regulation were placed on a statutory basis, as it would enable the BSB to react more effectively and efficiently to the rapidly changing nature of the market.

Furthermore, the LSB has concluded that, while a contractual basis for regulation may be appropriate for arrangements where the regulator and the regulated person are in alignment, it may not be appropriate in other areas, such as when enforcement action is needed. Remedies exist in the current contractual arrangements, but they may be difficult to enforce and may become increasingly difficult as new business models emerge.

I am aware that, when the LSB consulted on the draft Section 69 order in 2016, concerns were expressed by the Council of the Inns of Court, the Institute of Barristers’ Clerks and the Bar Council. The BSB has taken time to consider these concerns carefully and has committed to working with interested parties to ensure that regulations are proportionate and in keeping with the eight statutory objectives in the Legal Services Act 2007. I note that, while the Section 69 order enables the BSB to make rules and regulations in a number of important areas, the BSB cannot make changes to its regulatory arrangements without first obtaining the approval of the LSB. The LSB has strict criteria under which it considers applications for amendments to regulatory arrangements, including an expectation that appropriate consultation has been undertaken. As the LSB has demonstrated previously, it will not approve changes unless it is satisfied that the changes are necessary and will promote the regulatory objectives. In summary, the powers sought are proportionate and there are appropriate checks in place.

In conclusion, these statutory instruments are necessary to enable the BSB to carry out its role as a regulator more effectively and efficiently, and to better regulate in the consumer and public interest. I commend them to the House.

[Lord Thomas of Gresford (LD)]

My Lords, I really have no objection to the first statutory instrument; it seems quite appropriate that, where there are appeals relating to licensing authority decisions, they should be made to the First-tier Tribunal. I note that, when there was a consultation on these provisions, the only response was from the Bar Council, which agreed that the draft order was appropriate. Another point is that the number of appeals is very low—it is planning for appeal volumes of less than 10 cases per year, which is a very small part of the work for the First-tier Tribunal.

The order on modification of functions, however, is of a very different nature. We were discussing yesterday—and will be discussing for the next couple of months—the problems of delegated legislation and, in particular, the ability to have tertiary, not secondary, legislation; that is, the power to make rules and regulations delegated to a body outside the ambit of parliamentary scrutiny. The Bar Services Board in particular will, I believe, be outside statutory oversight by this Parliament. Therefore, one has to look very carefully at what it proposes to do. Will the Minister confirm that the Bar Standards Board has said that it wants these powers but is not going to exercise them? That appears to be the nature of what is said in the policy background and in the papers supplied in connection with this application.

The powers granted to the Bar Standards Board to make rules and regulations—tertiary legislation—are very extensive. Article 3 of the order deals with appeals. Article 4 is concerned with intervention powers that would permit the Bar Standards Board to enter premises, seize relevant papers and prevent a person practising. These are significant powers. Article 5 allows the Bar Standards Board to introduce rules and regulations that will require an authorised person—an individual barrister—to provide information and documents for the purpose of ascertaining whether any rules, regulations or code issued by the Bar Council are being complied with. In other words, it is a power to seize documents and to make a person respond to questioning about the nature of those documents. Article 6 is just out of this world. It gives the Bar Standards Board power to make disciplinary arrangements, which include the possibility of imposing fines not exceeding £50 million. Could an individual barrister have to pay a fine of £50 million? What sort of world is the Ministry of Justice living in? After the cuts it has inflicted on the Bar over many years, it is now lashing out £50-million fines and fines not exceeding £250 million for entities. These are just ridiculous figures.

Article 8 allows the Bar Standards Board, under the aegis of the Bar Council, to make practice rules requiring the formulation of a list of disqualified persons. The order allows the Bar Council, through the Bar Standards Board, to make compensation arrangements. It simply disregards the fact that members of the Bar are not allowed to hold clients’ money in any way at all, yet there are extensive compensation provisions in Article 9 of this proposed order. It seems to me that these powers are way over the top. If the Bar Standards Board is just saying, “We would like these powers but do not intend to use them”, the whole exercise is complete nonsense.

[Lord Beecham (Lab)]

My Lords, I approach this matter as a mere happily retired solicitor. I defer to the noble Lord’s long experience in these matters. I certainly share some of his misgivings, particularly in relation to the ludicrous amounts of compensation which might be involved. However, I congratulate the Minister on sticking to her brief and delivering it very effectively. I take some comfort—perhaps she will, too—from the absence, apart from the noble Lord who has spoken and the noble Baroness who has just entered the Chamber, of others who practise at the Bar, or who have practised at the Bar, and many Members of your Lordships’ House are in that position. It suggests that perhaps there is no great concern about these arrangements among those who have served at the Bar. That is some comfort.

However, I am not entirely clear about another aspect of the compensation fund. It is not clear whether that relates, as the noble Lord implied, to moneys handled by the members of the Bar or to compensation for negligence claims—which, I fear, solicitors are from time to time involved in and for which, of course, they are insured. The Minister may be able to clarify that.

On the role of the LSB with regard to the Ministry of Justice, the Explanatory Memorandum says that the compensation fund,

“cannot be implemented unless the LSB grants approval”.

Will the Ministry of Justice have any say in that process or will it be left entirely to the LSB to determine?

However, the thrust of the order—subject to some of the questions which have been raised, particularly by the noble Lord—seems to be in the right direction and ought to give confidence to those involved in the legal system. Perhaps the Minister could indicate whether the MoJ will in due course seek an update on how matters are progressing in, say, two or three years’ time, to see whether things are working satisfactorily or whether it might wish to suggest to the Bar Council that the situation might be reviewed.

[Baroness Vere of Norbiton]

I thank both noble Lords who contributed to the debate today for their questions. It is helpful to consider the issues that have been raised. Of course I completely understand the position of the noble Lord, Lord Thomas, and his concerns, which I hope to be able to allay this afternoon.

He began by talking about the nature of the delegated powers, so to speak, that will be created in due course under these orders. I suppose that to some extent he is right, but of course these powers will not be unique; in many instances barristers and other similar organisations will just be falling into line with what happens with other legal services organisations. The LSB—this relates to comments made by the noble Lord, Lord Beecham, as well—is an independent body from the Ministry of Justice. As with these sorts of bodies, the board members and the chair are appointed by the Lord Chancellor in consultation with the Lord Chief Justice. These are ministerial appointments and, as noble Lords would expect, these public appointments go through the process that is regulated by the Commissioner for Public Appointments.

The Legal Standards Board is of course tasked with looking at the rules and regulations of all the organisations in its field of responsibility. In these circumstances, any rules and regulations that are put in place by the Bar Standards Board will have to go to the LSB for approval, which is very important in making sure that the process is robust. The LSB has strict criteria on what the regulations and rules can set out for all its organisations. This is definitely not a rubber-stamping exercise. For example, in 2014 the LSB rejected a request from the Solicitors Regulation Authority to reduce its professional indemnity insurance limit—so there are still more than adequate safeguards to ensure that the rules are proportionate.

On intervention powers, which, again, the noble Lord, Lord Thomas, raised, under Schedule 14 to the Legal Services Act 2002 the BSB already has intervention powers in its role as a licensing authority that licenses alternative business structures. This order simply gives the BSB the same powers in regulating barristers and barrister entities. I am very keen that we understand that this simply also creates a level playing field as the innovative nature of legal services moves on and the number and type of organisations increase.

The BSB would intervene only in very rare circumstances if it were necessary to protect consumer and public interest—for example, if an entity were about to go bankrupt. The powers include seizing papers and closing down an entity. Of course, there is a right for the person affected to appeal to the High Court. We are very clear that the intervention powers will be used as a last resort, and after other sanctions, where there is an urgent need for protection.

The noble Lord, Lord Thomas, also asked why the BSB is seeking these powers if it is apparently not going to use them. To a certain extent we have to look at the types of organisation that we have at the moment but we also have to future-proof our regulatory regime against what might happen in the future. The regulated legal services market is evolving very rapidly at the moment and we must be prepared for what may come in the future. For example, where there might currently be no need for compensation arrangements, this may change in the future. The draft order enables the BSB to take a proportionate and, importantly, consistent approach to regulation by being able to decide to whom the obligations should apply.

The noble Lord, Lord Thomas, raised a point about fines. The maximum levels of fines may appear to noble Lords to be very high, as indeed they do to me—I cannot conceive of having that much money—but we must understand that some of the alternative business structures in particular will contain significant amounts of capital and may grow quite large, involving not just legal services but other types of businesses. It is important that we have the right incentives to make sure that people do not contravene the rules. The amounts are absolute maximums and it will be for the BSB to consider and consult on what fining regime and fine levels it should have in the future. As with all proposed rules, the fining regime will need to be approved by the Legal Standards Board. This safeguard keeps coming back: the Legal Standards Board has to approve the issues that we are talking about today.

[Lord Thomas of Gresford]

My point is that nobody other than the Legal Services Board will ever look at the possibility of effectively an offence being introduced by the Bar Standards Board with a maximum fine of £50 million—or £250 million if it is an alternative business structure. What is the need for that?

--- Later in debate ---

[Baroness Vere of Norbiton]

My Lords, I think that I have already explained the need: we do not know now where these legal services companies are going to go. I am sure that noble Lords will be aware that many legal services companies have a great amount of wealth. These are maximum figures. They are not figures that will necessarily end up in the regulations but they are there to future-proof these orders so that we make sure that we have a system that will work in the longer term.

The noble Lord, Lord Thomas, also talked about looking for evidence for change and asked why the changes were necessary. Despite the prohibition on holding client money, the BSB has, for example, recent experience of a situation where it felt that it would have benefited from an intervention power. Given the changing legal services market, it is clear that the BSB is asking for these powers because it feels that they will be used in the future.

If I have not covered any points, I am sure that we will pick them up afterwards and I will write to noble Lords.

The Legal Services Act 2007 established a new regulatory framework with the overarching aim of putting the consumer at the heart of legal services, and these orders are a further step in that direction. The BSB believes that a consensual, non-statutory regulatory regime is not appropriate, particularly where there is disagreement between it and those that it regulates. It is therefore in the public interest for it to have clear statutory powers with clear judicial safeguards.

Motions agreed.