Weaknesses in the statutory framework for legal services regulation have been exposed in a number of recent cases. Innovative business models and the widespread adoption of AI are posing regulatory challenges. Is it time for the government to act to reform the regulatory framework and ensure it is fit to address the challenges of the mid-21st century?
The compromise following the Clementi Review in 2004 left in place a patchwork of historic legislation, upon which the Legal Services Act 2007 was overlaid, designing regulation primarily around the traditional legal professions. Four recent examples illustrate the problem:
Legal professional privilege
The High Court recently decided in Carter-Ruck that the SRA cannot, when investigating potential misconduct, compel the production of privileged material without client consent. This has wide implications for the SRA’s ability to regulate the profession effectively. The SRA has been granted permission for a “leap frog” appeal to the Supreme Court.
The root cause of the problem is that the relevant legislation (the Solicitors Act 1974) does not contain the express words necessary for a statutory override of legal professional privilege, a fundamental right. It could and should have done so. An amendment to the Legal Services Bill attempting to make such express provision was withdrawn. The High Court in Carter-Ruck in part relied on the government’s response to that amendment, concluding that it demonstrated no clear intention to override privilege.
Mazur – the conduct of litigation
The Court of Appeal in Mazur considered the issue of when an unauthorised individual may conduct litigation under the supervision of an authorised individual. The Court confirmed that an unauthorised individual may lawfully perform tasks within the scope of the “conduct of litigation” reserved activity on behalf of an authorised individual, provided the authorised individual retains both formal responsibility and responsibility for maintaining the “professional principles” in section 1(3) of the Legal Services Act 2007.
This case (in which I acted for the Law Society) highlighted a number of issues with the 2007 Act:
- The broad and imprecise definition of the “conduct of litigation” reserved activity, which was carried forward from earlier legislation. In 2005, the Court of Appeal had commented that it was “unfortunate that this important definition is so unclear”, yet no attempt was made to add clarity in the 2007 Act.
- The 2007 Act includes an express exemption enabling an unauthorised individual to act under the supervision of an authorised individual in relation to probate activities and reserved instrument activities (essentially conveyancing) but contains no similar exemption in relation to the conduct of litigation. This led to uncertainty about the extent to which unauthorised individuals could support the conduct of litigation, which was particularly undesirable given the criminal offence of carrying on reserved activities when not authorised or exempt.
In the end, the dispute in the Court of Appeal concerned whether the degree of direction and control by the authorised individual, and adequacy of their supervision of the unauthorised individual, affected whether the unauthorised individual crossed the line into carrying on the reserved activity and thereby committed the criminal offence. The Court of Appeal considered that this was too uncertain where a criminal offence was involved and decided that the adequacy of supervision was a regulatory matter, although a grey area remains concerning when in reality litigation is being conducted by an unauthorised individual.
The Court of Appeal worked around the absence of a litigation exemption for supervisees by giving the phrase “carry on” a special meaning for the purposes of construing the LSA as it relates to the conduct of litigation. The result is that “carry on” has been found to have a different meaning in relation to different reserved activities. This is something of a curiosity as a matter of statutory construction and again an issue where clarity in the legislation would be desirable.
A further issue highlighted by the Mazur litigation was the lack of understanding in the profession about rights to engage in the reserved activities, perhaps as a result of the ambiguities in the legislation and guidance. If the lawyers don’t understand their own regulatory requirements, the public are even less likely to appreciate the distinctions between different authorisations.
Contrary to its own case in the Court of Appeal, CILEX’s own published guidance had stated for several years that there is no provision in the Legal Services Act 2007 for unauthorised people to carry out litigation under supervision. It initially maintained that position following the High Court judgment in Mazur.
There are sound public policy reasons why Parliament decided that the conduct of litigation should be reserved to authorised individuals (not just solicitors). From 2013, CILEX had the power to grant its Fellows the right to conduct litigation (which it chose to implement as a combined authorisation with rights of audience), but uptake appears to have been limited.
The media coverage surrounding Mazur referred to legal executives being “told overnight their litigation rights were effectively withdrawn”. The Court of Appeal was referred to an article quoting a Legal Executive specialising in multi-million pound catastrophic personal injury and clinical negligence cases: “we’ve had to apply in a lot of those issued cases to amend pleadings to replace my signature on claim forms/pleadings etc with that of the only solicitor here (who, ironically, wouldn’t have a clue how to run these cases as he deals with lower value claims)...Ludicrous.”
Where legal executives are practising in the way described, the obvious answer is that they should seek authorisation from their own regulator to conduct litigation. Obtaining those rights, as many now have, reinforces the experience and professionalism of Chartered Legal Executives.
BSB powers
Concerns have been raised in the context of the Post Office Horizon scandal that the Bar Standards Board lacks equivalent powers to the SRA to compel the production of documents from both barristers and third parties when investigating potential professional misconduct.
This is a function of the historical evolution of the retained legislation, which is more comprehensive in relation to solicitors than other branches of the profession.
The Legal Services Act 2007 includes such powers but these are only exercisable by the regulators in relation to alternative business structures.
The absence of consistent and sufficiently robust powers for all the approved regulators in relation to all of their regulated individuals and entities is an obvious lacuna which undermines the effectiveness of the regulatory scheme.
CILEX’s regulatory body
A further example of ambiguity was highlighted by the attempt by CILEX (now abandoned) to effectively abolish CILEX Regulation and transfer the regulation of legal executives to the SRA.
Separation of regulatory and representative functions of the “approved regulators” was one of the central objectives of the Legal Services Act.
An issue that was not foreseen or addressed in the Act was whether the approved regulator (in this case CILEX) could choose unilaterally to switch from one regulatory body to another in the face of opposition from the regulatory body (at least in circumstances where the regulatory body was not failing and formal intervention by the Legal Services Board was not justified).
As a matter of principle, the risk posed to regulatory independence is obvious if a representative body could remove regulatory responsibility for its profession from a regulatory body with which it disagreed, and vest that responsibility in a different regulatory body which was more amenable.
Conclusion
The above are only some examples of gaps and anomalies in the existing regulatory framework.
There has been concern for some time, expressed powerfully by the Independent Review of Legal Services Regulation led by Professor Stephen Mayson, that the framework is out of step with the realities of modern practice.
The recent high-profile failures by the SRA and resulting enforcement action by the LSB reinforce that view. The issue will only become more acute as technology transforms the delivery of legal services.
The case for the government to act and legislate to introduce a comprehensive modern statutory regulatory framework is compelling. It would be complicated and there would be controversy – for example, debates about the merits of a single FCA-style statutory regulator would inevitably resurface. Can the political will be found to make it happen?
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