Legal Services Bill [Lords]


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Clause 32

Directions
Amendment made: No. 2, in clause 32, page 16, line 14, leave out from ‘have,’ to end of line 15 and insert
‘an adverse impact on one or more of the regulatory objectives,’.—[Bridget Prentice.]
Clause 32, as amended, ordered to stand part of the Bill.
Clause 33 ordered to stand part of the Bill.
Schedule 7 agreed to.
Clause 34 ordered to stand part of the Bill.

Clause 35

Public censure
Amendment proposed: No. 3, in clause 35, page 17, line 27, leave out from ‘have,’ to ‘and’ in line 28 and insert
‘an adverse impact on one or more of the regulatory objectives,’.—[Bridget Prentice.]
The Committee divided: Ayes 9, Noes 6.
Division No. 15 ]
AYES
Bailey, Mr. Adrian
Flello, Mr. Robert
Foster, Mr. Michael (Worcester)
Goodman, Helen
Hesford, Stephen
Kidney, Mr. David
McCarthy, Kerry
Mann, John
Prentice, Bridget
NOES
Bellingham, Mr. Henry
Burrowes, Mr. David
Djanogly, Mr. Jonathan
Ellwood, Mr. Tobias
Hughes, Simon
Neill, Robert
Question accordingly agreed to.
Clause 35, as amended, ordered to stand part of the Bill.

Clause 36

Public censure: procedure
Mr. Bellingham: I beg to move amendment No. 247, in clause 36, page 18, line 15, at end add—
‘(4A) As soon as practicable after deciding to publish a statement, the Board must give notice to the approved regulator stating that it has reached that decision and setting out the terms in which the statement is to be published; and the Board must not publish the statement until after the expiry of 7 days beginning with the day on which notice is given under this subsection.’.
The Chairman: With this it will be convenient to discuss the following:
Clause stand part.
New clause 13—Appeal against public censure
‘(1) An approved regulator in respect of whom the Board decides to publish a statement under section 35 may appeal to the court on one or more of the appeal grounds.
(2) The appeal grounds are —
(a) that the decision was not within the power of the Board under section 35;
(b) that any of the requirements of section 36 have not been complied with in relation to the imposition of the penalty and the interests of the approved regulator have been substantially prejudiced by the non-compliance;
(c) that in all circumstances, the publication of a statement under section 35 is, or the terms of the statement published or to be published are (or would be), manifestly unreasonable or inappropriate;
(d) that the decision is unlawful on any ground that would give rise to a claim for judicial review.
(e) that the decsion is unlawful on any ground that would give rise to a claim for judicial review.
(3) An appeal under subsection (1) must be made within the period of 42 days beginning with the day on which the notice was given to the approved regulator.
(4) Where an appeal is made before the expiry of the 7-day period the Board must not (unless the court otherwise orders) publish the statement until the appeal has been withdrawn or dismissed.
(5) On an appeal under subsection (1), where the court considers it appropriate to do so in all the circumstances of the case and is satisfied of one or more of the appeal grounds, the court may—
(a) quash the decision to publish a statement, or
(b) vary the terms of the statement (and, where the statement has been published, direct the Board to publish to the same extent the statement as varied).
(6) In this section “the court” means the High Court.’.
Amendment No. 248, in clause 39, page 20, line 3, at end insert—
‘(da) that the imposition of the penalty on any ground that would give rise to a claim for judicial review.’.
Amendment No. 249, in clause 39, page 20, line 27, leave out subsection (7).
Mr. Bellingham: I have papers that could allow me to prolong the debate for as much as an hour and a half, but the Labour Whip keeps making rude faces at me, so I shall do my level best to curtail the debate; I shall try to be succinct and to get the point across cogently yet effectively.
Amendment No. 247 makes it clear that the board should give notice to the approved regulator, saying that it has reached a decision and setting out how the statement should be published. Again, that is perhaps stating the obvious, but the amendment would also allow the approved regulator time to consider its response. In the interests of fairness, the amendment says that the Legal Services Board should not
“publish the statement until after the expiry of 7 days”.
That is what amendment No. 247 says and I very much hope that the Minister will see the logic and good sense of the amendment.
New clause 13 would give the right of appeal against public censure; very simply, the new clause makes it quite clear that there should be that right of appeal. It is plain to the Opposition that the Government intended that there should be measures in the Bill to provide for such an appeal. On the other hand, we have examined the Bill carefully and we have not seen that it offers that necessary level of protection to the public, or to anyone who might be censured, including any approved regulator. Therefore, having this new clause makes a great deal of sense.
I shall briefly address amendments Nos. 248 and 249. Very simply, amendment No. 248 inserts onpage 20, line 3:
“that the imposition of the penalty”
is unlawful
“on any ground that would give rise to a claim for judicial review.’.
Amendment No. 249 is consequential on that amendment. It would take out clause 39(7), which is basically an ouster clause. Subsection (7) says:
“Except as provided by this section, the validity of a penalty is not to be questioned by any legal proceedings whatever.”
To my mind, that is a straightforward ouster clause. There is a strong argument for judicial review. I will not repeat all the arguments that were made in the other place, but it seems to me that the amendment makes sense, is logical and is very much in line with what the Government are trying to do, which is to ensure that there is fair treatment for all concerned. I do not see how one could have that fair treatment unless we accept this amendment, which would allow the claim for judicial review.
Therefore I hope that the Minister will look carefully at what we have proposed. I have gone through these amendments as succinctly and as quickly as I can. On that basis, I beg to move the amendments.
The Chairman: May I say to the hon. Member for North-West Norfolk that he need not be intimidatedby the Government Whip, the hon. Member for Worcester? However, if he is determined to remain very much in order and succinct, I know that members of the Committee will be very grateful indeed.
Simon Hughes (North Southwark and Bermondsey) (LD): I would first like to welcome you, Sir Nicholas, to the Chair; it is very good to serve under your chairmanship again.
Bridget Prentice: All these amendments seek to create additional provisions for enabling decisions to be challenged. I would argue that they are all unnecessary, because the Bill already achieves essentially the same outcome and these amendments would just create duplication and add to bureaucracy.
New clause 13 and amendment No. 247 would insert a new right of appeal from decisions on public censure and therefore they duplicate the judicial review grounds that already exist. Amendments Nos. 248 and 249 would allow challenges to be brought in judicial reviews for decisions to impose financial penalties. Again, that duplicates the grounds that already exist as part of the appeal process.
5.30 pm
I am minded to consider amendment No. 247, which states that seven days’ notice must be given. I may want to look at that further. I should say though that I am not convinced that it is entirely necessary. Clause 36 already provides that the board publishes a statement, and it must allow a period of 28 days or more to allow the regulator to make representations. I understand the idea of the seven days, but I think that it is probably covered already. However, I will look at the matter again.
I will speak briefly about financial penalties and the circumstances in which they are involved. There is a qualitative difference in financial penalties. We need to guarantee the applicant’s right to challenge not only the imposition of that penalty, but also the amount of it. That is not to say that it would not be possible to challenge the amount of the penalty, or the timescale for payment, via judicial review, but it is not necessarily automatic. It is more likely that the amount would have to be manifestly unreasonable.
It is for those reasons, therefore, that I feel thereis a lot of duplication in the amendments. The amendments are not necessary because we have covered in an appropriate fashion the way in which approved regulators can challenge decisions of the board. The hon. Member for Bassetlaw would say that nobody knows how to go to judicial review better than the lawyers. I am quite confident that the proposed system will establish a fairness without further duplication.
Mr. Bellingham: I am grateful to the Minister for that explanation. I take on board her last point. It was more of a probing amendment on judicial review. I was encouraged by what she said on the matter of the seven days. On reflection, she may agree more with what I was saying. The seven days gives the organisation that is being censured time to respond. That is important in the interests of fairness all round. Perhaps the Minister could come back to me on that on Report. I am grateful to her for her remarks. On that basis, I beg leave to withdraw the amendments.
Amendment, by leave, withdrawn.
Clause 36 ordered to stand part of the Bill.

Clause 37

Financial penalties
Simon Hughes: I beg to move amendment No. 225, in clause 37, page 18, line 30, at end insert—
‘( ) The Board may not determine that it is appropriate to impose a penalty unless it is satisfied that the matter cannot be adequately addressed by the Board exercising the powers available to it under sections 31 to 36.’.
The amendment is supported by the hon. Member for North-West Norfolk and some of his hon. friends. I will read the proposal that was put to me and others by the Law Society which explains why the amendment is both sensible and justified. In the clauses so far, we have looked at various ways in which there can intervention. We have considered censure in clauses 35 and 36, directions that can be given by the board in clauses 32, 33 and 34. We considered the setting of performance targets in clause 31. Before that, we examined the rules that require the separation of regulatory and representative functions.
We are now discussing a clause on financial penalties. The amendment is designed to restrict the powers of the board by prohibiting it from imposing a financial penalty unless it is satisfied that it cannot adequately address the matter by exercising its other powers. It would put penalties on a gradated scale and would force the board to consider other types of intervention, such as direction or censure, before imposing a financial penalty. That position would be consistent with that of other regulatory regimes that have been established by Parliament in recent years. The amendment would ensure that the Legal Services Board could not impose fines unreasonably. It would also ensure that any action that is taken does not hit the wrong target.
It is commonplace for direct regulators of services, particularly those provided commercially, to havethe power to fine those who fail to comply with requirements. That is unarguable. The recent McCrory report emphasised the importance of the availability to regulators of a wide range of sanctions, including the power to fine, to ensure that the sanction for the breach of regulatory requirements is sufficient to removeany financial incentive to fail to comply with responsibilities. It is sensible to have a financial penalty to deal with wrongful activity for financial gain. That is entirely logical. The Law Society is seeking powers to fine solicitors for regulatory breaches in appropriate circumstances so that, as a regulator, it has an effective range of available sanctions, rather than having to refer all such cases to the Solicitors Disciplinary Tribunal. That is entirely sensible, too.
I have been told—I have thought about it and I cannot dispute it—that it is unusual for there to be a power to fine a body that carries out regulatory, non-commercial activities. I have been given the examples of the Council for Healthcare Regulatory Excellence, which has no power to fine any professional medical bodies, and the Financial Reporting Council, which has no power to fine the accountancy bodies.
Given that the Legal Services Board has extensive powers to make directions, which are by definition enforceable, it is far from clear that a power to fine approved regulators is necessary. The Joint Committee picked that up in its report during pre-legislative scrutiny and the Government said that they would reconsider the issue, but they have not come back with an answer to the concerns expressed in the Joint Committee or elsewhere. In the Lords, the issue was debated in part. Baroness Ashton, the Minister, sought to justify the power to fine with reference to the position of other regulators, including the Financial Services Authority and Ofgem. Both of those directly regulate service providers, however; there is no intervening tier, so they do not supervise other regulators. The Legal Services Board is, by definition, the umbrella. Other regulators, of which the Law Society is one, have been approved to set up in anticipation of the legislation. It is not a parallel situation. We are talking about a three-tier structure; the other organisations that have such a power to fine are part of a two-tier structure.
I have been told that the only example that supports the Minister’s case is the power of the Legal Services Complaints Commissioner, which was created under an addition to the Access to Justice Act 1999. It was intended to cover a specific problem with the Law Society’s handling of consumer complaints. I remember the debate on the subject, and there was thought to be a need to give the commissioner more teeth in that context. It is unusual for a supervisory regulator to have the power fine another regulator, so that power needs to be confined to circumstances in which no other sanction is appropriate. The first argument against the provision is therefore that it is not based on precedent and it appears wrong in principle.
The second argument is that, with legal services regulation, day-to-day responsibility for regulatory action will, by definition, rest with the regulatory arm of the relevant professional body. The representative side will not be able to control the way in which the regulatory arm operates; indeed, it would be a serious breach of the principle of independence if it sought to do so. One of our great debates was about ensuring that we separate regulation and representation absolutely and rightfully.
Any fine would not impact on the regulatory arm unless it were charged against the regulation side’s own budget, which would defeat the whole purpose of having a fine, because that would mean fining the fund that is there to put things right and to deal with problems. Any such fine would effectively be borne by the professional body, and thus its members and the representative arm. Members of the regulatory arm would not even be subject to any sanction from an electorate for having incurred the fine, as they are all appointed under Nolan principles rather than elected, so they could not be ousted. It would not be the equivalent of a vote of no confidence that would result in them leaving their office.
There is a risk that lawyers who are regulated by the approved regulator will bear the whole burden of any such fine without being able to exercise any effective influence over the people whose failings led to the imposition of the fine. That seems wrong to me, as a matter of principle. I believe that the Joint Committee also thought it wrong, but the answers given in the Lords did not address the issue. That is my second reason for asking the Minister to be sympathetic.
In the debates in the other place, the Government tabled an amendment to ensure that approved regulators cannot be fined for the failings of their regulatory arm unless a direction has already been made under clause 31. That provides some welcome protection for approved regulators. By placing appropriate requirements on their regulatory arms, they will be able to ensure that they can intervene where necessary to ensure that directions are complied with, but there is still a significant risk of fines being used inappropriately, because the current drafting does not prevent that. It does not seem to guarantee that other options have to be considered before that power is used.
My last point is that there is frequent media pressure on professional bodies across the board, not just legal bodies, and on regulators to flex their muscles and exercise their powers to intervene. That is rightful and understandable in certain cases; you and many others, Sir Nicholas, have been keen, in our talks on rail services in this place, that the regulator should be able to intervene when railway companies do not do their jobs properly and services are not what constituents of yours, mine and our colleagues would wish. It is absolutely right that there should be calls for that to happen, but that alone is not a good justification for it to be the common practice if other remedies are appropriate and available.
Good regulatory practice requires regulators to use the least draconian sanction that will meet the regulatory need. It would be quite wrong to fine an approved regulator simply because circumstances have arisen in which there is, in theory at least, a power to do so. The power to fine should properly be exercised only when the Legal Services Board is satisfied, under the provisions in the Bill, that no lesser sanction, such as direction or censure, will suffice. I believe that the Government have accepted that principle as far as the board’s power to intervene in the functions of approved regulators is concerned. I think that that was said to be generally the case by Ministers elsewhere, and I suggest that the same principles should apply to fines as it does elsewhere. On that basis, I hope that the Minister will accept our arguments, or at least take them away to consider, and will be sympathetic.
Mr. Bellingham: My name and those of my colleagues have, indeed, been added to the amendment. It is a simple and straightforward, but nevertheless important, safeguard to ensure that the LSB does not impose financial penalties where lesser sanctions would suffice. The hon. Member for North Southwark and Bermondsey made a very powerful case. It is designed to prevent capricious, over-the-top fining. It is to ensure that the fining option is the last option available. I take on point his point: there will be quite a lot of pressure on the Legal Services Board to make examples and to flex its muscles. If it is to do that, an extra constraint needs to be built in. That is why we support the amendment and I hope that the Minister will accept it.
5.45 pm
John Mann: You missed, I suspect, Sir Nicholas, the floods and downpours across the north of England over the weekend. Hon. Members are more than making up for it with their attempts to water down the Bill. Indeed, one wonders whether one is living in a parallel universe. I expect the Tardis to appear at any moment. I know which Time Lord will be backing the people and which will be backing the solicitors, barristers and judges.
It is absolutely extraordinary in the context of the Bill and what is happening in the real world that we are seeing attempt after attempt after attempt by the vested interests of the legal profession to look after their own. If this was trade union legislation 15 years ago, if this was the immediate fining of trade unions for technical flaws in the holding of industrial action ballots,would the hon. Member for North-West Norfolk(Mr Bellingham) argue that it was capricious and over the top? I think not.
Let me balance the argument and cite the case of four of my constituents who three years ago madea consumer complaint against Rayleys Solicitors. Rayleys Solicitors disputed it. They disputed the fact that these four, elderly, ill miners had a complaint. All four went with me to visit Rayleys unexpectedly, with a little bit of publicity, and we went inside and met the senior partners. We explained their case for justice in no uncertain terms. Still Rayleys refused to pay out. They still do today. There have been no fines on Rayleys. They are allowed to prevaricate. Why? Because every time one thing happens, the legal profession comes up with a legal excuse for challenging it.
My constituents were required to go through70 pages of technical legal arguments as the defence to a very straightforward complaint that they had been diddled and double charged over meagre compensation for emphysema, money they needed to give them a better quality of life. They had 70 pages of legal argument thrown at them as the defence that they are required to make a judgment on. It is only because of the common sense of the Law Society in allowing representation from people like me that these claims have ever seen the light of day.
Is it a coincidence that no miner or textile worker put in complaints before tiny numbers of MPs started to do so on their behalf? Is it just a coincidence that none of them did so, that they did not realise that they could challenge the solicitor who had, in some cases, stolen the money from them? That was done quite openly and quite deliberately and from large numbers of them. The solicitors then threw the legal book at them, wriggling every way, challenging the Law Society, challenging the regulation. They issued writs, bullied, threatened and intimidated.
There are solicitors who visited complainants at home. There are solicitors who sent third parties to visit complainants at home. For example, my constituent, after his third heart attack, is no longer in the statistics of the Law Society because he withdrew his complaint, fearing that the pressures being put on him by the solicitors who had done him over would kill him. Some of my constituents who, in the process of attempting to get justice, died—
Mr. Bellingham: Is this relevant?
John Mann: It is relevant. The hon. Gentleman, who spoke about capriciousness and being over the top, says that it is not relevant. What is relevant in the context of this debate and these attempts to water down the Bill is nowhere to be found in the hon. Gentleman’s and the Liberal Democrats’ amendment.
The Chairman: Order. May I say to the Committee that what the hon. Gentleman is saying is relevant? When it is not, I will tell him.
John Mann: I implicitly trust your sound judgment, Sir Nicholas. As ever, I shall stick entirely to the relevant facts brought from my experience of my constituents, who were unable to be heard in the Joint Committee—I was unfortunately unable to be chosen to serve on that Committee—whose voices shouldbe heard in the case of these amendments and, if necessary, others. Any watering down of the powers in the Bill will be resisted. If the point was put to the people outside, the 60 million who are not part of the cosy legal profession, I know which way they would go. They would say that the Bill is a modest attempt at self-regulation. It is a generous attempt at allowing self-regulation—I applaud that light touch and think that it is what is appropriate for Government, and therefore I am out of touch with most of my constituents, who would like me to be far more robust. I call on the Minister strongly to reject these representations and others to water down the Bill because those with vested interests, not least in the House of Lords, wish to protect them.
Simon Hughes: The hon. Gentleman speaks with absolute justification, as far as I know, about solicitors’ abuse of their professional responsibility when acting in the sorts of cases that he has brought regularly to the attention of the House and dealt with locally. Nobody, and certainly nobody in my party, defends that activity. Nobody is suggesting that solicitors who behave inappropriately should not be dealt with.
If the hon. Gentleman is good enough to reconsider by re-reading the amendment, he will see that it does not say that there should not be fines or punishment for solicitors. It does not say that solicitors’ firms should not be punished or brought to book for breaking the rules and behaving in the disgraceful way that he described. It does not say that there should not be a fine on the Law Society, if appropriate. All that it says is that if the second tier of punishment, which involves punishment of the regulator—the Law Society in the case of solicitors—is a financial penalty, it has to come after consideration of the appropriateness of other matters. I do not think that that is contradictory to anything that the hon. Gentleman argues for. I certainly did not intend it to be, and on reflection, if he is fair-minded about it, I do not think that he will think that the amendment has that effect.
The amendment, therefore, would reduce the board’s ability to exercise what I believe is a key regulatory function to make appointments if it were no longer able to respond with the flexibility that it needs to address failing regulators. That is inconsistent with the current approach to regulatory sanctioning regimes, which argue for greater flexibility and the use of the widest range of sanctions possible.
The hon. Member for North Southwark and Bermondsey said that he could not find many examples of one regulator fining another. Almost certainly he is right. The model of oversight regulation that we are proposing is unusual, but Sir David Clementi thought it preferable to the establishment of a single body along the lines of the Securities and Futures Authority because it will retain the best parts of the existing arrangements. He argued also that the LSB should have the maximum regulatory flexibility, which is consistent with the findings of the Macrory review, which argued that regulators should have the widest range of sanctions possible.
We have modified the fining power to meet some of the concerns of the Law Society. I have to say to Opposition Members that the consumer bodies would not support the amendment if it meant that we were watering down the powers any further. There might be times when it is necessary to impose a financial penalty—for example, where there were repeated failings that could be addressed by censure each time, but where, accumulatively, the situation was out of control and firm action was clearly necessary. If the regulator expects a lesser power to be exercised each time it fails in the same way, and if that power has no real impact on the regulator in preventing future failings, clearly that regulator has far less incentive to correct those failings. The board would be stuck then with issuing the same censure over and again and the problem would never be resolved.
Stephen Hesford: Is not the point a little shorter? I know that the Minister is trying to do justice to what has been said, but is the point not that the amendment is completely unnecessary because, under clause 39(2)(c), one of the grounds for an appeal against financial penalties is that the penalty is unreasonable? If it were unreasonable, and there should have been a lesser penalty, the appeals procedure would find that to be the case.
Bridget Prentice: My hon. Friend is absolutely right. I raised clause 39 for that very reason in an earlier debate. The approved regulators would have that opportunity if they thought that the fine was unreasonable. I said specifically that almost certainly they would appeal on the basis of the amount, rather than anything else. He is right to point that out.
Consumers, who are at the heart of the Bill, consider that the power to impose a financial penalty is essential to the regulator’s remit. I think that they are right. It sends a clear message to the regulated body that it must improve its standards, and acts as a reminder to other bodies that failings will not go unnoticed or unattended. That is vital for the consumer. Unnecessary restraints would deal a blow to the very heart of the principles in the Bill. If I need to convince the Opposition of that, Which? did a survey and found that nearly four out of five people—78 per cent.—agreed that the independent regulator should be able to fine the legal profession if it did not do its job properly. More than 53 per cent. agreed with that strongly.
I urge the Committee to reject the amendment for the reasons given by me and by my hon. Friends. I cannot accept any further constraints on the power. Its purpose is clear, its necessity is verifiable and its scope is balanced. I hope that Opposition Members will reflect on what has been said and reconsider whether they are helping the legal profession by giving consumers the belief that this is another opportunity for it to look after its own interests rather than theirs.
6 pm
Simon Hughes: The Minister knows that I am a reflective individual. I shall make three short points. The first is that Which?, a good organisation that produces a good magazine—I have often consulted it, as have other Committee members—does not surprise the world by finding that a majority of the public at large would like solicitors who do not do their job properly to be fined. I do not think that that quite wins the argument of itself. It is a simple question to which the likely answer is yes.
To answer the contribution of the hon. Member for Wirral, West, of course there is a power of appeal on the basis that a fine is unreasonable. That is as it should be. The argument was not that there should be no power to fine; it was simply that the power to fine should be the end of the options available. However, despite what arguments may still exist for the amendment and for others like it, the Minister has asked me to withdraw it and to reflect. I am happy to reflect. I shall go back and read what she said earlier when the debate is printed. On that basis, and on the basis that I shall return to the matter if necessary, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 37 ordered to stand part of the Bill.
Clauses 38 to 40 ordered to stand part of the Bill.
 
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