Legal Profession: Regulation

Lord Faulks Excerpts

Monday 3rd December 2012 Lords Chamber

[Lord Faulks]

My Lords, I begin by declaring an interest. I am a practising barrister. I was a head of chambers for nearly a decade until relatively recently and I am a former chairman of the Professional Negligence Bar Association.

I shall make a few observations about the position of the Bar. My noble friends Lord Gold and Lord Phillips of Sudbury will no doubt speak about the solicitors’ profession. When I started to practise, the Bar was lightly regulated, the profession was much smaller, chambers were much smaller, circuits had more power and influence, and most senior barristers proceeded to some form of judicial post. The standard of ethics was extremely high, but there were undoubtedly some restrictive practices which needed to change. Those practices, together with the considerable increase in the size of the profession and the way it functioned, called for examination.

Following the report of Sir David Clementi, the Bar Council carried out his central recommendation: that there should be a split between the regulatory and the representative elements of the Bar Council’s work. It therefore established the Bar Standards Board. The members had extensive experience of regulation and corporate governance and were appointed on Nolan principles.

It would be inaccurate to say that the Bar, a still small and independent profession, universally welcomed the arrival of the board but, since it has been set up, there has been a growing respect for what it does. There have inevitably been increasing demands on chambers in terms of record-keeping, compliance with regulation and a variety of measures that the board has imposed on the profession to secure high standards and ensure that the Bar functions in a way that reflects the public interest.

The key to the respect that the BSB commands is the evidence-based approach adopted by the board and the sense among barristers that it has taken the time and trouble to understand the Bar and the way it practises, both its weaknesses and its strengths. The need for a super-regulator, or oversight regulator, to oversee the approved regulators such as the BSB has not been seen by the profession to have any obvious justification—to put it mildly—particularly when it seems to involve sets of chambers duplicating many of the obligations placed on them by the BSB and increasing still further the cost of compliance.

What is the proper role of the Legal Services Board? As the Legal Services Bill was going through Parliament, a number of parliamentarians expressed the fear that the LSB might be heavy-handed and would not allow approved bodies such as the BSB, once they were operating effectively, to get on with the job. Reassurance was provided by the then Government. For example, on 13 June 2007, Bridget Prentice MP, the Parliamentary Under-Secretary of State in the Department for Constitutional Affairs, said:

“It is important that the oversight regulator does not micro-manage and second guess the actions of the approved regulators, as Members on both sides of the Committee will agree”.—[Official Report, Commons, Legal Services Bill (Lords) Committee, 13/06/07; col. 95.]

This is a reference to the work of the Joint Committee on the Draft Legal Services Bill, to which Sir David Clementi had said in evidence that there should be “minimal interference” by the LSB in the work of the approved regulators.

I have had the opportunity of reading the Bar Council’s response to the triennial review of the LSB by the Ministry of Justice, together with the LSB’s response. To the disinterested observer, I recommend reading these two documents. The arguments of the Bar Standards Board are compelling. Those of the LSB are rich with regulatory language, not easily understood by the general reader, and include a great deal of self-justification. They also indicate a desire to play an increasing role in the regulation of the legal profession. The response concludes with an observation about a review of the 2007 Act:

“Any significant change to the current settlement in advance of such a review will divert effort unnecessarily from the current challenging delivery agenda”.

This does not sound very much like what Parliament had in mind for the Legal Services Board.

I will give the House an example of where the LSB clearly wishes to have a significant involvement in the way the legal profession functions, which is in relation to legal education. The chair of the LSB observed in his Lord Upjohn Lecture in 2010 that the current framework for legal education and training was,

“simply not fit for purpose”.

In his own 2012 Lord Upjohn Lecture, Lord Neuberger, the president of the Supreme Court, made this observation about David Edmonds, the chairman of the LSB, and the Legal Education and Training Review:

“I cannot share the view which David Edmonds was reported in the Guardian as expressing in March this year, namely that he would be ‘extremely disappointed’ if the LETR only made minor recommendations. That suggests a conclusion that major reform is both necessary and proportionate, reached in the absence of any evidence and analysis. But surely we should wait for the evidence, the analysis of that evidence, and the conclusions drawn from that analysis before we start talking of disappointment or the nature of the appropriate recommendations. We should all be surely approaching the Review and its outcome with an open mind”.

No doubt the observations of the chairman would be said to be consistent with one of his goals in the LSB’s draft strategic plan for 2012 to 2015, which was,

“to reform and modernise the legal services market-place in the interests of consumers, enhancing quality, ensuring value for money and improving access to justice across England and Wales”.

The LSB clearly has very significant regulatory ambitions.

Who pays for the increasing regulation? The cost falls on practitioners and very harshly on those who are starting and who depend on the publicly funded fees which are steadily reducing in their true value. Smallish sets of chambers with a high BME quotient are particularly hard hit. For those not dependent on publicly funded work, the cost of regulation—much of which, in my view, is unnecessary—will ultimately fall upon the consumer of legal services, who will have to pay more for the increasing infrastructure that is necessary in chambers in order to comply with the burden of regulation.

Barristers are, frankly, bewildered by some of the requirements imposed by the LSB. The inept requirement by the LSB that barristers should inform their lay clients at the point of first instruction of their right to make a complaint to the chambers and, as necessary, to the legal ombudsman, shows very little understanding of the way barristers actually practise and an insensitivity of the circumstances in which a client sees a barrister. Similarly, the requirement by the LSB that quality and assurance should extend to practitioners’ advisory work reveals a complete ignorance of the way in which the profession works—not to say a failure to grasp fundamental principles of law in relation to the privilege which attaches to instructions given to barristers. These examples and many more illustrate the perils of having a non-expert lay regulator attempting to devise rules of conduct for practice by members of the legal profession.

Barristers understand the need for regulation and for public confidence in the legal system. However, it should not be forgotten that the legal profession is held in high regard throughout the world, as is our system of justice, and results in considerable benefit to the economy of this country. We should take considerable care before ripping up the model.

I am sure that the Minister will accept, as do the Government, that regulation needs justification and that our economy generally has been overburdened by unnecessary and inappropriately onerous regulation. I urge the Minister to support post-legislative scrutiny of the effectiveness of the Legal Services Act, particularly the scope of the LSB’s activity.

I congratulate the noble Baroness, Lady Deech, for bringing forward this important question to your Lordships’ House. I applaud her contribution to the raising of standards at the Bar and endorse all that she has said so ably in today’s debate.

--- Later in debate ---

[Lord Ahmad of Wimbledon]

I thank the noble Baroness for her question and I agree with her. It is important that those in the profession contribute to the effectiveness of how these rule changes are implemented. I take on board what she says and I hope that some of the proposals we are putting forward will address the issues. I note the concerns expressed by my noble friend Lord Faulks and the noble Lord, Lord Hunt, about mission creep on the part of the Legal Services Board. As I said at the outset, the important issue is about the terms of reference: what was the Legal Services Board set up to do? Earlier this year, the Ministry of Justice conducted a triennial review of the Legal Services Board and the Office for Legal Complaints. Based on this, let me assure your Lordships that, on the responses received—including those from the approved regulators—the review concluded that, while it is still relatively early to assess the full impact of the Legal Services Board, its functions are still needed and should continue to be delivered in their current form.

This was a view supported by the Bar Standards Board and the Bar Council. We must remember that the Legal Services Board is independent of government and it is not for us to dictate how it operates. Its functions are clearly set out in the 2007 Act. However, it is clear that there has been a real need for an oversight regulator to drive the reforms set out in the Act. In doing so, it has fulfilled the important role that only an oversight regulator could have. Those who responded to the triennial review recognised the value it has brought. Following the feedback we have received, the chairman of the Legal Services Board wrote to the Ministry of Justice confirming that his board is also considering the responses made so far.

I am conscious of time, but turning to specific questions, my noble friend Lord Gold raised the issue of micromanagement and corporate governance. The Legal Services Board recognises that important challenges are emerging from the triennial review and accepts that there are things it needs to address. These will include more detail on its draft business plan for 2013-14, and proposals will include reviewing the approach to requests for changes to regulatory arrangements and designation processing, and refining the approach to research funding. Priorities will be included in the draft business plan. Increased understanding of the cost of regulation, not just the cost of the LSB but the full cost of practitioners, will also be looked at. A further issue was raised regarding the value for money of the Legal Services Board. Since the board became operational, it has recognised the need to keep its costs proportionate, and we have seen its running costs reduced year on year, from just over £5 million in 2009-10 to £4.5 million in 2011-12. The combined running costs of the Legal Services Board and the Office for Legal Complaints were approximately £22 million, somewhat less than the cost of the complaint handling regime that was previously in place.

Various issues and questions have been raised in terms of accountability and the post-legislative review. We are confident that for the here and now, the regulation of legal services is appropriate, but that does not mean it will remain so indefinitely. Given that the new regulatory framework was implemented only in 2010, we still believe that it is in its infancy. The next triennial review is due in 2015 and will provide another opportunity to assess how the regulatory framework is performing and whether the LSB’s functions are still needed in an evolved legal services market.

In conclusion, it is important to remember that the new regulatory regime and governance arrangements are still in their early stages, a point acknowledged by respondents to the triennial review. I assure the noble Baroness, Lady Deech, my noble friend Lord Faulks and other noble Lords that the Government are fully engaged with the legal profession and other interested parties in carrying out that triennial review. During that process, we not only conducted a call for evidence but held round-table events and one-to-one meetings. We will continue to engage openly with interested parties as part of that. I also assure noble Lords, including my noble and learned friend Lord Mackay, the noble and learned Lord, Lord Goldsmith, and my noble friend Lord Faulks, as well as the noble Baroness, that we will carry out post-legislative assessment of the Legal Services Act. That will look at the original aims of the reforms and how far we have come in implementing them, and we will be seeking further stakeholder views. Finally—

[Lord Faulks]

Before the noble Lord concludes his remarks, can he help the House by saying whether one possible outcome of the review will be that the Ministry recommends that the LSB does not have any further function at all?

[Lord Ahmad of Wimbledon]

I thank my noble friend for the question. That is a matter that will come up. As I have already alluded to, this organisation is in its infancy and came about only in 2010. It is right that we look at this again at the time of the review in 2015.

Finally, I also assure my noble and learned friend Lord Mackay, who talked of his Green Papers—and being green in your Lordships’ House, he was my very own personal parliamentary Companion—that I heard what he said about the importance of education and his particular question about universities and the College of Law. I shall certainly refer that to my right honourable friend the Universities Minister.

The reforms enabled by the Legal Services Act have provided a proportionate and effective regulatory regime that remains, currently, fit for purpose. All those with an interest in the legal services market have an interest in ensuring that this continues. I thank the noble Baroness—and indeed all noble Lords—for their contributions this evening, with the assurance that we will continue to look at this particular function and its effective regulation, with all interested parties contributing to future reviews.