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In paragraph 14 of Schedule 13, under which a licensing authority may require non-authorised persons to provide it with such documents and information as it may require, it appears to be the intention of the Bill that the applicant should demonstrate fitness to own, rather than that the applicant should be entitled to be approved unless the licensing authority can demonstrate that it is not fit to own. However, merely demonstrating an absence of criminal convictions should not be sufficient to entitle an applicant to become an approved person. For example, the possession of unexplained wealth could give rise to reasonable suspicions about the integrity of an applicant. It is important that the licensing authority should be able to refuse approval in those circumstances, unless it received a convincing explanation of the source of the wealth. The amendment
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Baroness Ashton of Upholland: The noble Lord continues to keep me on my toes: I thought that these two amendments appeared separately on the groupings list but I shall deal with them together. That is not a problem as they follow each other on the Marshalled List and it makes complete sense to put them together.
I do not think that Amendment No. 108DAA is necessary but I entirely agree with the sentiments behind it. It is reasonable to expect a licensing authority to be able to charge the full cost of processing licence applications. That extends to charging the full cost of each individual application, whether successful or not. Applications will generate varying amounts of work depending on the nature of the applying body, the nature of the services that it intends to offer and the size of the operation that it plans. For example, a large firm intending to open in a number of locations will need more consideration than a small firm intending to open in only one. It would be difficult for application fees to be refunded if unsuccessful. That would increase pressure on the licensing authorities to grant applications where they should not really do so. Non-refundable application fees are common and I cannot see licensing authorities differing from what I would describe as usual practice.
We do not want one firm to end up subsidising another if the full cost is not charged in each case. That would create problems and it would make the authority unattractive to firms if fees for them were disproportionately high. I assure noble Lords that fee levels and their effects on legal services markets can be monitored. Fees form part of the licensing rules. Rules may specify that costs have to be recovered in full from fees or may set individual fees based on the amount of work individual applications are estimated to need. Rules have to be acceptable to the board before it will put a body forward for designation as a licensing authority. If there are concerns about effects on smaller firms or on competition, they can require changes. I hope that that reassures the noble Lord.
I turn to Amendment No. 108DAB. I agree entirely with the principle of this amendment. It is right and proper that, in allowing non-lawyers to invest in law firms, we ensure that the onus is on those people to prove that they meet the standards of regulators. A licensing authority will be under no obligation to approve the holding of any particular interest merely because it has no evidence that the person is somehow not fit and proper.
Instead, licensing authorities will have to be satisfied that the applicant in question has actively demonstrated that he meets the approval requirements set out in paragraph 6 of Schedule 13, but I am confident that we have achieved in the schedule what the noble Lord is seeking to do. The test for approval of an interest is set out under paragraph 6 of the schedule. In the case of every applicant, the licensing authority must be satisfied that the proposed interest will not compromise either the regulatory objectives or the ability of ABS
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Under paragraph 14 of the schedule, licensing authorities may require further information from non-lawyer investors, and under paragraph 19 they may object to the holding of the interest in question if they are not satisfied that the approval requirements are met. Licensing authorities are therefore required to consider a wide range of matters, but the burden of proof in satisfying each individual requirement rests with the individual applicant. I would in no way wish to provide for a situation where licensing authorities were somehow bound to give approval to investors about whom they had doubts because they did not have sufficient evidence to prove those doubts, but as I have stated, that is not the effect of the provisions.
If the information which the applicant provides is not sufficient to satisfy the licensing authority under each and every head of the test, the licensing authority may refuse its approval. I would argue that the noble Lord’s amendment is unnecessary as the provision already achieves the desired outcome in this regard. I hope that answers the noble Lord’s questions.
Lord Hunt of Wirral: In saying how strongly I support these amendments and all that my noble friend has already said, I respectfully point out that the latest Marshalled List that I have shows my noble friend to be in the clear in that Amendment No. 108DAA is to be taken with Amendment No. 108DAB.
Baroness Ashton of Upholland: He is always in the clear with me.
Lord Hunt of Wirral: I hope Hansard will put those words in block capitals. However, there is a doubt. As the noble Baroness has made it clear that she believes that Amendment No. 108DAB is unnecessary, will she give a little thought to why there is a doubt? Perhaps we can explore ways of putting the matter beyond doubt other than in this proposed amendment. I hope she will agree to look at that.
Baroness Ashton of Upholland: I am always happy to look. As I have indicated, at the end of Committee stage, I shall be checking things. I want to put on record why we think it works, in the hope that between Committee stage and the next stage we will have had a conversation about whether Members are satisfied that we have that right. If not, I want to be able to get more advice from either parliamentary counsel or legal advisers on why it works, so that we come to an agreement. We are really in the same place, but we think we have achieved it. If there is doubt, of course, I shall look at it again because we want to achieve the same thing.
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Lord Kingsland: I was extremely happy to hear that the noble Baroness entirely accepts the logic behind both amendments. If there is a difference between us it is whether the text of the Bill satisfactorily expresses what we both wish it to express. The noble Baroness feels that it does, but we have some doubt about that. As we are agreed on the objectives, I hope that the noble Baroness will consider between now and Report whether she is absolutely right in thinking that the Bill covers all the eventualities that we fear might be provoked if the Bill is not absolutely clear. I see the noble Baroness nodding, so she plainly will so act. In those circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 13 [Ownership of licensed bodies]:
[Amendment No. 108DAB not moved.]
Clause 88 [Duties of non-authorised persons]:
Lord Kingsland moved Amendment No. 108DB:
The noble Lord said: This amendment was rightly provoked by the City of London Law Society. Its purpose is to avoid imposing professional duties, which are statutory, on non-professional members of staff. Briefly, Clause 88 imposes an obligation on non-authorised employees of an ABS to refrain from doing anything that contributes to a breach of professional duties of an authorised person. So, for example, a secretary who types and sends correspondence on the wrong letterhead could be directly and personally liable for a breach of professional rules even though he or she had not had the benefit of professional training and nor would he or she hold a professional qualification. Therefore, there is a justifiable perception that that is unfair. Professional duties should not be extended on a statutory basis to non-professional members of staff. It is also perhaps unnecessary, to the extent that solicitors are already responsible for breaches of professional duty caused by their members of staff. I beg to move.
Baroness Ashton of Upholland: I am grateful to the noble Lord. I shall reiterate the duties in Part 5 designed to protect lawyers’ professional obligations. Clause 88 protects Clause 169, in that Clause 169 places a duty on regulated persons to comply with regulatory arrangements applying to them, including practice rules and rules of professional conduct, many designed for client protection. For licensed bodies, regulatory arrangements will include licensing rules and all the safeguards that they contain. Regulated persons are authorised persons, and managers and employees of authorised bodies.
6.30 pm
Clause 88 deals with non-authorised employees, and managers must do nothing that causes or substantially contributes to a breach by a body or authorised person of the Clause 169 duty, the point
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These are important protections. They ensure that authorised persons’ professional obligations and alternative business structures’ safeguards are protected from undue influence within the firm. They answer concerns about allowing non-lawyers to be involved in the management and ownership of law firms. I would be nervous of supporting an amendment that could create a huge loophole in that.
I understand the desire to remove obligations on non-professional members of staff and perhaps to replicate the position of solicitors’ firms, where employees are under no specific obligations and managers are all authorised persons. However, these firms will be different and the provision is not applicable to them. There will be new mixes of authorised and non-authorised persons. Traditional structures will not be universal, and we must recognise potential new risks in the safeguards we create.
Removing employees would remove a key safeguard that the Bill places on them to ensure that they do not cause or contribute to breaches of firms’ and lawyers’ professional conduct obligations. We are not obliging employees to ensure that lawyers respect their professional conduct rules; that is one of the head of legal practice’s responsibilities. Clause 88 only puts them under a duty to refrain from exercising adverse influence or otherwise causing, or substantially contributing to, breaches of rules.
The noble Lord may think that is unnecessary because many employees are not in a position to influence the firm’s performance of its obligations. That may be so, but some employees will be. Some will be in decision-making positions and other positions with considerable direction or supervision. If an employee’s job would not allow him or her to contribute to a breach of Clause 169 there should be no problem, but we cannot assume that all employees will be in that position. The Clause 88 duty should, in practice, catch only those who are in a position to exert influence or otherwise substantially contribute to breaches. It would also remove an important element of licensing authorities’ direct regulatory control over non-authorised employees. Where they did cause or contribute to a breach of Clause 169, direct action could not be taken against them but there would have to be action against the firm instead. That could be unfair and disproportionate, especially if the employee acted outside the firm’s control.
Most importantly, perhaps, the amendment makes it easier for non-authorised employees to interfere improperly in the licensed bodies’ operation. That goes against our view of the safeguards, and the need for them as expressed in your Lordships’ House. I hope that answers the noble Lord’s question of why the provision is written in that way, and that he feels able to withdraw his amendment.
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Lord Kingsland: I am grateful to the Minister for her response, and can see that Clause 88 is, in practice, intended only to comprehend those who exert real influence over a firm’s decision-making. In the normal course of activities, that would exclude the example I gave in my opening remarks.
Once again, however, that is not clear in the Bill. It therefore seems that there is discretion under the Bill for somebody who does not exert such influence to be caught by Clause 88 nevertheless. I find it difficult to see how, for example, in a judicial review, a court would conclude that targeting such a person was, in the wording and context of Clause 88, irrational. That is the City of London Law Society’s concern. I respectfully suggest that the Minister add this to the long list of matters she already has to reflect upon between Committee and Report. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 108E and 108F not moved.]
[Amendment No. 108FA not moved.]
Clauses 104 and 105 agreed to.
[Amendments Nos. 108FB to 108FE not moved.]
[Amendment No. 108G not moved.]
Lord Maclennan of Rogart moved Amendment No. 108H:
“Miscellaneous (a) the demography of the area, and (b) the size of the area. (a) such persons or bodies he considers represent the interests of consumers; (b) such persons or bodies he considers represent the interests of approved regulators; (c) such other persons or bodies as he considers appropriate.(5) An order under subsection (1) shall be laid before, and approved by a resolution of, both Houses of Parliament.”
The noble Lord said: As we reach the end of our consideration of Part 5, I propose a new clause intended to probe how the Government envisage the rolling out of the alternative business structures. It is also intended to let us consider the possibility that, notwithstanding the Government’s commitment to the liberalisation of the provision of legal services and
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When replying to the Government’s consultation paper In the Public Interest?, the Law Society said that,
- “there is a risk that there may be long-term structural effects that destroy service provision and the fabric of small communities ... there are very serious risks to access to justice from the uncontrolled admission of new entrants ... We believe that the Government needs to carry out much greater research into the likely impact of liberalisation before taking final decisions on the way forward”.
It is very difficult to carry out research without a pilot scheme. The theoretical response to the liberalisation of the market cannot be wholly successful in answering the great uncertainties to which everyone who has looked at this issue has drawn attention. The Joint Committee that examined the draft Bill drew attention to the possibility—which we debated earlier, at some length, so I shall not rehearse those arguments—that some of the reforms may reduce geographical availability. Its report stated:
“We recommend that the Government amends the draft Bill to ensure that the impact of ABSs on access to justice, particularly in rural areas, informs the decision-making process for licensing an ABS firm”.
The practicalities of establishing a pilot scheme may seem formidably difficult, and I look forward to hearing what the Minister has to say about them. However, in view of the potential consequences of the implementation of Part 5, it is reasonable to proceed by bringing forward the fruits of a pilot scheme to be considered by Parliament. Those who are satisfied that the project is worth embracing in the interests of the consumer will be fortified if a pilot scheme demonstrates that the fears are unjustified. There is no hurry to reach a conclusion. If one takes the advice of the progenitor of this development, Sir David Clementi, it seems that caution is the characteristic that should govern how we proceed.
Lord Clinton-Davis: For how long does the noble Lord envisage a pilot scheme operating?
Lord Maclennan of Rogart: That is a matter for consideration. I have not attempted to prescribe how long it would be. It should be considered by the Government in consultation with representatives of consumers, the legal profession and those who are interested in providing the service. A pilot scheme would not be conclusive if it was too short, but it would not go on indefinitely. It should cover an area of the country that is broad enough to be representative of a number of different circumstances and contains urban and rural areas, so that it would represent the country as a whole.
I tabled this amendment at least as much in the hope that the Government will indicate how they propose to roll out the establishment of alternative business structures as to promote the merits of my suggestion, which are, none the less, worthy of consideration. I beg to move.
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