Justice Committee. Legal Services (Scotland) Bill. Written submission from Professor Alan Paterson

Transcription

1 Justice Committee Legal Services (Scotland) Bill Written submission from Professor Alan Paterson Memorandum of Evidence to the Justice Committee from Professor Alan Paterson, Centre for Professional Legal Studies, Strathclyde University (The Centre is a think tank in relation to the legal profession, professional ethics, and access to justice). This evidence is given in my personal capacity. Background 1. Alternative Business Structures are said to have many advantages for the public and the legal profession allowing greater innovation in delivery vehicles, new ways of providing holistic legal services and permitting non-lawyers to invest in providers of legal services. As against this it can also be said that there is little evidence of public or consumer demand for this reform, that it could permit supermarkets and bulk providers of legal services to cherry pick legal work in a way that may have a serious impact on high street law firms and on access to justice in rural areas. At a time when the regulation of financial services has conspicuously failed, the Government is right to argue in their Policy Memorandum (paragraph 46) that light-touch regulation is not the answer to the dangers inherent in the proposed reforms. Only robust regulation will do. We need adequate regulatory standards to protect access to justice in Scotland, especially in the rural areas and to sustain the rule of law and the proper administration of justice by insisting that those investing and participating in the provision of legal services through licensed legal services providers (LLSPs) are fit for ownership and practice. Moreover, LLSPs and those that work in them cannot be held to a lower standard of conduct and service or permitted to offer a lesser degree of public protection than the existing branches of the legal profession in Scotland. Section 1 Regulatory objectives 2. I am happy with the drafting of the regulatory objectives. Although there was some debate in the England and Wales as to whether these should be ranked in any way, I do not believe that such a reform would strengthen the first section of the Bill and arguably it might weaken it. Section 2 Professional principles 3. These principles are meant to enshrine the core values of the legal profession in Scotland and the UK, and could indeed do so, depending on how they are interpreted. On balance I consider that these obligations have been insufficiently spelt out. Whilst supporting headings (a) (f) I would add a further 1

2 principle: (g) act in a way that maintains public confidence in the profession and elaborate headings (c) and (d) in the Bill. Thus heading (c) needs to stipulate that acting in the best interest of the client requires compliance with four further subsections: i) To observe the duty of confidentiality ii) To disclose all relevant information iii) To avoid conflicts of interest iv) To safeguard the client s money and property. The Government recognise that several of these are embodied within the duty to act in the best interests of the client (see the Explanatory Notes paragraph 14) but effective promotion and maintenance of this obligation requires that its content be spelt out in greater detail, especially if it is envisaged, as appears to be the case, that approved regulators might extend beyond the current regulators of the legal profession to include non-lawyer professional organisations. In my view these elaborations should be included in a schedule to the Bill. Again in relation to obligation (d) I would suggest that as the Law Society has itself recognised, maintaining good standards of work entails compliance with four other standards: i) To be competent ii) To communicate effectively iii) To be diligent and iv) To show respect and courtesy These could be included in delegated legislation. This would help to ensure that the degree of protection offered to the public by those working within alternative business structures or LLSPs will be same as currently pertains for clients of the legal profession today. Part 2 Chapter 1 Approved regulators 4. The Government has accepted the bulk of the regulatory model for dealing with alternative business models which is enshrined in the Legal Services Act 2007 in England and Wales. However, they have rejected the concept of a superregulator (the Legal Services Board) due to an unwillingness to create and fund another NDPB grounds (Policy Memorandum paragraph 51). This creates certain problems which Chapter 1 of Part 2 of the Bill does not entirely resolve. First, there may be a perception that the Ministers in exercising this function might cut across the independence of the profession. Given that Government will be required (rightly in my view) to comply with five principles of good regulation set out in the Better Regulation Task Force report (see Explanatory Notes paragraph 20) and subject to judicial review if they do not, I am not convinced that this is as big a threat to the independence of the profession as the 2

3 introduction of alternative business structures themselves. Some have argued that as a further protection to independence the Lord President should also have to approve applications to become an approved regulator, as well as Ministers. As a blanket proposition that might raise policy and accountability problems, however, there may be a more limited role for the Lord President, provided he is given adequate support staffing, to be satisfied as to the legal competence and professional probity of would be regulators. It would seem sensible that were the Lord President to have a determining role ( albeit over a lesser range of factors than Ministers ) as well as a consultative role, that in the former capacity he should be asked to have regard to the views of those consulted in terms of section 6(3)(b) & (c). 5. Secondly, the absence of a super-regulator in Scotland, in my view strengthens the case (set out in paragraph 5.21 of the Government Consultation paper) for an independent consumer panel to be established to advise Ministers (and possibly now the Lord President) on applications for authorisation (including the application of the regulatory objectives and professional principles) as well on the operation of the regulatory framework. This proposal was strongly supported in the Consultation responses and whilst appreciating the Government s reluctance to create another NDPB, I believe it is important that such a body be created as in England and Wales. In the specific context of the education, training and admission of legal services providers who work within LLSPs I would favour the suggestion (also mentioned in the Consultation Paper) that the Joint Standing Committee on Legal Education should be consulted with respect to regulatory matters relating to the education, training and admission of legal services providers within ABSs. Section 9 Regulatory conflict 6. One of the enduring problems in relation to bringing together providers of legal services from different professional and other backgrounds, particularly if they are to be in a partnership together, is how to deal with the divergences between their respective professional and other standards and codes of conduct. This has long been recognised as one of the principal difficulties with introducing multidisciplinary partnerships (see A. Paterson. Multi-disciplinary partnerships a critique 8 (2001) International Journal of the Legal Profession 161). An obvious risk would arise if the llsp were permitted to adopt the standards of practice and conduct of the lowest common denominator in the entity. The Bill does not entirely solve this problem. Regulating the llsp entity against the standards and conduct of the approved regulator ensures that the LLSPs will be held to the standards of the current branches of the legal profession in Scotland provided the approved regulator is a branch of the legal profession. However, were the approved regulator to be a professional body with less demanding professional standards than those currently expected of legal professionals e.g. in relation to conflicts of interest, then the protection for the public may be diminished. This is 3

4 why, in my opinion, it is so important that the professional principles in section 2 are expanded upon and section 9 is strictly enforced. Sections Licensing rules 7. I am generally happy with these provisions, with one major exception. There is no provision for a Guarantee Fund or a Compensation Fund to recompense client whose funds have been stolen by a member of a llsp. The requirement that there be adequate professional indemnity arrangements (section 19) is not sufficient protection even if they include fidelity cover, because the latter only operates if one member of the llsp is not involved in the fraud. Were a law firm to be taken over by persons with a criminal intent, the lack of an adequate compensation fund in the event that client funds are stolen by them, would be a major weakness in the client protection measures expected of LLSPs. In my opinion it is essential that any approved regulator has in place an equivalent to the Law Society s Guarantee Fund backed by ancillary audits. Section 23 Regulatory functions 8. The division between regulatory and representative functions is a tricky one. Some of the functions performed by professional bodies contain elements of both these functions. This is but one reason why I do not consider that we should follow the English model of requiring professional bodies to split themselves into two different entities, the regulatory part and the representative part. However, I equally do not think that professional bodies or approved regulators can be sole arbiters as to which heading a particular function comes under, which is why I disagree with the wording of section 23(1) of the Bill. Originally, the Law Society of England and Wales regarded legal education, admission and professional training as regulatory matters. In Scotland the Law Society regarded them as representative matters. In my view the English approach is more in accord with the public interest, although I could be persuaded that there is an element of a representative function as well. Chapter 2 9. The Key to ABSs is how to regulate them effectively. Although there are a few jurisdictions which regulate law firms as well as the lawyers who work in them, this not the norm. However, when it comes to the regulation of ABSs there is a wide degree of consensus from Australia, England and Scotland that the ABS entity must be regulated as well as those who work in them. Moreover, the regulation is required to be proactive and robust. It follows that I am broadly content with the proposals for entity regulation of LLSPs (including the provisions of section 65 ). However, I would expect the approved regulator, the Head of Legal Services and the Head of Practice to have a duty to seek to ensure that LLSPs and all those who work in them should be required to comply with the 4

5 ethical and service requirements of the approved regulator and the professional principles in particular. I am not sure that the Bill as drafted goes as far as this. 10. Regulating the conduct of people who work in LLSPs is more complex, since by definition they will involve individuals drawn from a range of professional groups, and sometimes from none. In my view it is imperative that the conduct and service rules of the approved regulator will have to apply to every person who works in an ABS for the purposes of holding the entity to account, and that the Head of Legal Services and the Head of Practice be charged with monitoring and taking all practicable steps to ensure compliance with this. This goes further than sections 39 and 40 of the Bill. 11. One key problem remains. How is the conduct of individuals who breach the standards/ professional principles of the approved regulator to be dealt with? For lawyers the answer is straightforward, they will be disciplined against the profession s own professional principles. For other professionals the Bill s proposal is that their professional body will discipline them against their own professional standards. If these are more permissive than those of the professional principles an anomaly will be created. Finally, non-professional members of the llsp will not be disciplined against any professional code, although they could be prevented from working in an llsp again. Given the likelihood that members of LLSPs will instinctively conform to the standards of their professional body, if any, it would seem that LLSPs are likely in practice to lead to a leavening of standards towards the more permissive end of the spectrum, unless all principals in the entity are personally held to the standards in the professional principles. Outside investors 12. This is clearly a major area for concern. Ensuring that the fitness for involvement test is effective to exclude criminal elements from investing in or taking control of law firms is a significant issue. Confirmation Services 13. As with LLSPs, if confirmation agents could handle client s money it is imperative that they be required to have an equivalent to the Guarantee Fund. Part 4 Chapter The statutory framework for the regulation of the Faculty of Advocates is skeletal in the extreme, and goes against the whole thrust in the Bill towards transparent regulation of legal services providers. In my view, in the 21st century the case for a more a fleshed out regulatory framework (including laypersons) for Scotland s independent referral bar speaks for itself. 5

6 Possible Additional issues McKenzie Friends 15. There appears to be considerable confusion as to the status of McKenzie Friends (persons assisting a party litigant in the courtroom through advice, taking notes and providing moral support ) in Scottish courts. A McKenzie friend was permitted to an appellant in a Scots appeal to the House of Lords (Malloch v. Aberdeen Corporation (No.2) 1973 SLT (Notes) 5) and other examples have been found. Whilst it has been suggested that the quickest solution to this problem would be an Act of Sederunt, in my view the time has come to recognise by statute, particularly in situations where legal aid is not available or affordable, that party litigants should be permitted to have a friend sitting beside them (not behind them) to offer support and assistance. This should either be an entitlement or a presumption with the presiding judge only being able to exclude such assistance where there is substantial and substantive evidence that to permit such assistance would be disruptive of the court. However, I believe that other considerations come into play if it is suggested that the McKenzie friend should speak on behalf of the partly litigant. Here I believe the judge should only allow such representation where he/she considers that it would be of assistance to the party litigant and the Court. Contingency Fees 16. I agree with the Gill review that it would be premature to introduce these into Scotland without further consideration and consultation. Professor Alan Paterson 2 December