Archive for the ‘Chapter 9’ Category
Research into Alternative Business Structures: the Legal Services Board
Since licensing began in 2011 there have been 950 ABS licences issued. As of March 2017 there were 892 active licences. In April 2017, the Legal Services Board published a significant report into ABS. It sought to address 4 questions, which I have adapted from the report and which I try to summarise here:
1.What kind of investment activity has there been in ABS?
These businesses are predominantly existing legal service businesses converting to ABS status, with one in five respondents to our survey being new firms. Three fifths of ABS have less than 50% non-lawyer ownership. Just under one in five ABS are wholly owned by non-lawyers, with a similar proportion being fully owned by lawyers but having some proportion of non-lawyer managers….
The research shows that the majority of ABS firms (66%) either have already invested or are planning to do so, since they gained their ABS licence. These investments have mainly been made to hire more staff, increase marketing activity or to purchase IT. The LSB sees this as evidence of the increased scale that allowing non-lawyer ownership was designed to enable.
2.Is the market attractive to all sources of finance?
The survey shows ABS firms accessing a wide range of sources of finance, and only a small proportion of ABS indicating difficulties in accessing finance. The most frequent source of funding for investments was business profits or cash reserves which were used by 49% of those who had invested in their business. Just over a quarter of investments were solely funded us ing a loan from a bank, and a quarter were solely funded using the business’ overdraft facility.
External sources of equity finance accounted for only a minority of investment funding sources either as the sole or joint source of investment funds, and only 12% of ABS had used any form of external finance. Partnerships are more likely to use debt funding for finance, with 55% using loans or overdrafts, but none had used external investment. Companies limited by guarantee had the highest proportionate use of any form of external funding, with 24% issuing shares, investment from private equity, or becoming a subsidiary of another company.
3. What do investors think of the legal services market?
According to the investors interviewed, the legal sector is seen as a ‘sleepy’ market with opportunities for investors to grow their investment capital by improving efficiency within the business itself. They appear to have concerns about the ability to exit the legal sector once their investment has matured, although there are some examples of private equity investors having sold on their investment and exited the sector.
Except perhaps in the personal injury sector, it would appear that bank lending is a substitute for external capital. For the firm this means they do not have to cede ownership control of part of their business. In addition, there is a view that many firms do not present financial information in the ways investors expect and/or have a weak grasp of the value of their businesses.
This might explain the investor’s perspective of the legal sector as being reluctant to seek investment from private equity firms, and reports of investors struggling to find appropriate firms in which to invest. While the overall size of the market and the scale of businesses operating may limit opportunities for some investors, the LSB thinks that cultural norms, governance, and non-commercial financial management practices in some businesses are likely to be more important factors.
4. Are there any regulatory barriers to investment?
Only 6% of ABS identified some aspect of legal services regulation that prevented them accessing finance. Nor does the cost of legal services regulation appear to be a barrier… However there is anecdotal evidence of some areas of regulation causing concern to investors. These includes restrictions on ownership and picking up liabilities for historic complaints and insurance claims.
Only 1.5% of ABS identified some aspect of wider regulation that prevented them accessing finance. The regulatory barriers to investment cited by the investor and investment consultant we spoke to relate mainly to wider regulatory and governmental activity, particularly in relation to personal injury reforms
Conclusion:
The potential link between investment and enabling better access to legal services is well–rehearsed elsewhere. However, investment remains an under-explored area of research and generally licensing authorities have not used their data to understand trends in investment and financing. [Overall it may be concluded that] levels of innovation are not increasing.
The dynamics of competition create incentives for suppliers to increase productivity through innovation, which lowers costs and hence prices through time. This is likely to involve taking a different approach to delivering a service, or developing new services completely. In the absence of strong competition, there is insufficient impetus for law firms to take the greater risks (and rewards) involved with using external capital.
Until these incentives change the LSB thinks there is unlikely to be significant growth in the use of external capital by ABS firms.
The report can bee seen at http://www.legalservicesboard.org.uk/news_publications/LSB_News/PDF/2017/20170613_LSB_publishes_investment_in_legal_services_research.html
Regulation of Claims Management Companies: The Financial Guidance and Claims Bill 2017
In March 2016, the Government announced that it planned to change the ways in which the regulation of Claims Management Companies is organised.
At present, this work is undertaken by a special unit within the Ministry of Justice. What is planned is that this work should be transferred to the Fincancial Conduct Authority – which has broad regulatory oversight of the financial services sector.
In the Financial Guidance and Claims Bill, which was published in June 2017, legislative proposals have been set out which – when the Bill is enacted – will achieve this objective. Clauses in the Bill will make amendments to the Financial Services and Market Act 2000 to enable the Financial Conduct Authority to regulate claims management company activity as a ‘regulated activity’ under the Act.
In addition, clauses in the Bill provide for the transfer of complaints-handling responsibility from the Legal Ombudsman to the Financial Ombudsman Service. This will allow the Financial Ombudsman Service to take over jurisdiction to investigate and determine consumer complaints about the service provided by the claims management companies.
The Financial Conduct Authority will also be given power to impose a cap on the fees that claims management companies can charge for their services.
These seem to me sensible reforms which should offer better protection to consumers who use Claims Management Companies and to protect companies against malpractice by those companies.
The Bill has started its progress through Parliament. I anticipated the measures will be enacted sometime in 2018, with implementation shortly thereafter.
The Bill can be viewed at https://publications.parliament.uk/pa/bills/lbill/2017-2019/0001/18001en03.htm
Recent annual reports on the work of the Claims Management Regulator can be found at https://www.gov.uk/government/collections/claims-management-regulator-annual-reports
Book review: Ombudsmen at the Crossroads
This is a interesting review of a book by Nick O’Brian and Mary Serevinatne about the now defunct Legal Services Ombudsman (now replace by the Office for Legal Complaints). Written by the current Parliamentary and Health Services Ombudsman, Rob Behrens, both the book and the review offer interesting insight into the role of ombudsmen and how they may better serve the public.
Increasing diversity in the Judiciary
There has long been a desire to see more female and black and minority ethnic (BAME) people appointed to the judiciary. The present Lord Chief Justice Lord Thomas has promoted a number of initiatives designed to build on work already started by the Judicial Appointments Commission.
In April 2017, the Judicial Diversity Committee of the Judges’ Council published its latest report on progress together with – for the first time – an Action Plan for activities to be undertaken in 2017-2018.
The headline objectives of the Committee are set out in the report as follows:
In the next 12 months, we will –
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continue our dialogue with BAME lawyers better to understand the barriers they face and identify what more the judiciary can do to support them;
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work with the Law Society, Bar Council and CILEx to ensure that we are doing all we can to reach the broadest range of talent;
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encourage more networking among the existing courts and tribunals judiciary;
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run more workshops to support a greater number of candidates from under-represented groups to prepare for the selection process;
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further develop our communications to potential candidates and those who have an interest in judicial diversity; and
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improve the monitoring and evaluation of our initiatives.
While these aims may seem little bland, detailed reading of the report reveals that there is intended to be an extensive programme of workshops, mentoring, outreach and other initiative designed to encourage those from groups currently under-represented in the judiciary to think about law and a judicial career.
The report also provides a link to a number of judges talking about their experience in becoming a judge – designed to inspire others to contemplate following their path. See https://www.judiciary.gov.uk/about-the-judiciary/judges-career-paths/videos-judges-talk-about-their-judicial-careers/
The report is at https://www.judiciary.gov.uk/publications/judicial-diversity-committee-of-the-judges-council-report-on-progress-and-action-plan-2016-17/
Dealing with whiplash injuries: the Prisons and Courts Bill 2017
For some time the Government (under pressure from the Insurance industry) has been concerned about the numbers of claims and the aggregate amount of those claims for minor injuries arising from Road Traffic Accidents.
Between November 2016 and January 2017 the Government consulted on a package of measures to tackle the continuing high number and cost of whiplash claims and their impact on motor insurance premiums.
The Government’s concern was that the volume of road traffic accident related personal injury claims has remained static over the last three years and is over fifty per cent higher than 10 years ago (460,000 claims registered in 2005/06 28 compared with 770,000 in 2015/16) despite a reduction in the number of road traffic accidents reported to the police and improvements in vehicle safety, for example better head restraints.
It was noted that similar improvements in vehicle safety in other jurisdictions have led to a reduction in both the number of claims and motor insurance premiums.
The Government’s view is that the continuing high number of low value claims increases the cost of motor insurance premiums, paid by motorists in England and Wales. The Government has set out its view that the level of compensation paid to claimants for these claims is also out of proportion to the level of injury suffered. It has therefore decided to introduce measures to disincentivise minor, exaggerated and fraudulent claims.
Part 5 addresses this matter.
Clause 62 enables the Lord Chancellor to specify in regulations, in the form of a tariff, the damages that a court may award for pain, suffering and loss of amenity (“PSLA”) for relevant whiplash injuries sustained in road traffic accidents, in those cases where the duration of the injury does not exceed or is not expected to exceed two years. The tariff will provide for an ascending scale of fixed sum payments with the relevant tariff for a particular case identified by reference to the severity of the injury. Regulations may specify different sums for different descriptions of injury.
There will be power to deviate from the tariff in exceptional circumstances.
Clause 64 bans regulated persons (basically solicitors and barristers, legal executives and alternative business structures) from making or accepting a payment in settlement, or inviting, or offering to settle an RTA related whiplash claim without appropriate medical evidence.
Whether these changes will actually lead to any reduction in insurance costs is currently hard to determine, particularly given other recently announced changes that may result in a general increase in awards of damages for personal injury.
Transforming the Justice System: the Prisons and Courts Bill 2017
Enromous changes to the ways in which courts – both criminal and civil – and tribunals operate have already been foreshadowed in a number of policy documents published during 2016. Parts 2 to 4 of the Prisons and Courts Bill contain provisions that will give statutory authority to the changes that have been proposed.
The headline provisions may be set out as follows:
Part 2 creates new procedures in civil, family, tribunal and criminal matters.
It makes changes to court procedures in the Crown Court and magistrates’ courts to make processes and case management more efficient.
It allows some offenders charged with summary-only, non-imprisonable offences to be convicted and given standard penalties using a new online procedure.
It extends the use of live audio and video links, and ‘virtual’ hearings where no parties are present in the court room but attend by telephone or video conferencing facilities.
It makes provision which will apply across the civil, criminal and tribunal jurisdictions to ensure public participation in proceedings which are heard virtually (by the streaming of hearings), including the creation of new criminal offences to guard against abuse, for example by recording such stramed hearings.
It creates a new online procedure rules committee that will be able to create new online procedure rules in relation to the civil, tribunal and family jurisdictions.
It bans cross-examination of vulnerable witnesses – in particular those who have been the subject of domestic abuse – in certain family cases.
It confers the power to make procedure rules for employment tribunals and the Employment Appeal Tribunal on the Tribunal Procedure Committee and extends the membership of the Committee to include an employment law practitioner and judge or non-legal member.
Part 3 contains measures relating to the organisation and functions of courts and tribunals.
It extends the role of court and tribunal staff authorised to exercise judicial functions giving the relevant procedure rules committees the power to authorise functions in their respective jurisdictions.
It abolishes local justice areas, enabling magistrates to be appointed on a national basis, not just to a specific local justice area.
It replaces statutory declarations with statements of truth in certain traffic and air quality enforcement proceedings.
It makes reforms to the arrangements for the composition of employment tribunals and the Employment Appeal Tribunal.
It enables the High Court to make attachment of earnings orders for the recovery of money due under a judgment debt, as far as practicable, on the same basis as in the County Court.
Part 4 contains measures relating to the judiciary and the Judicial Appointments Commission.
It enables more flexible deployment of judges by enabling them to sit in different jurisdictions.
It brings the arrangements for the remuneration of judges and members of employment tribunals – currently undertaken by the Secretary of State for Employment – under the remit of the Lord Chancellor.
It rationlises the roles of judges in leadership positions who will support a reformed courts and tribunals system. (This includes provision to abolish the statutory post of Justice Clerk; this role will continue, but those qualified to be Clerks will also be able to undertake analogous work in other court/tribunal contexts.)
It gives the Judicial Appointments Commission the power to carry out more work (not directly related to judicials appointments) on a cost-recovery basis.
Source, Explanatory Notes to the Prisons and Courts Bill 2017, available at https://www.publications.parliament.uk/pa/bills/cbill/2016-2017/0145/en/17145en02.htm
Competition in Legal Services: new report
The Competition and Market Authority Final Report on legal services was published in December. Its interim report was noted in this blog in July 2016.
The CMA found that competition in legal services for individual and small business consumers is not working as well as it might. In particular, there was a lack of digital comparison tools to make comparisons easier for consumers. Lack of competition meant some providers can charge higher prices when substantially cheaper prices are available for comparable services.
In response to these findings, the CMA set out a package of measures which challenges providers and regulators to help customers better navigate the market and get value for money. These changes were drawn up after discussions with key stakeholders, including the 8 frontline legal regulators, and will be overseen by the Legal Services Board, which will report on progress.
They include:
A requirement on providers to display information on price, service, redress and regulatory status to help potential customers. This would include publishing pricing information for particular services online (only 17% of firms do so at present).
Revamping and promoting the existing Legal Choices website to be a starting point for customers needing help, information and guidance on how to navigate the market and purchase services.
Facilitating the development of comparison sites and other intermediaries to allow customers to compare providers in one place by making data already collected by regulators available. At present only 22% of people compare the services on offer before appointing a lawyer.
Encouraging legal service providers to engage with feedback and review platforms to ensure that customers can benefit from the experience of others before making their choice.
Recommending that the Ministry of Justice looks at whether to extend protection from existing redress schemes to customers using ‘unauthorised’ providers.
In addition, the CMA considered the impact of legal services regulation on competition. The CMA found that whilst the current system is not a major barrier, it may not be sustainable in the long term. In particular, the framework is not sufficiently flexible to apply proportionate risk-based regulation which reflects differences across legal services which could harm competition. The CMA therefore also recommends that the Ministry of Justice reviews the current framework to make it more flexible and targeted at protecting consumers in areas where it is most needed.
The Legal Services Board has welcomed the report and announced that it will publish its response in due course. The Ministry of Justice response is also awaited.
For more detail https://www.gov.uk/government/news/cma-demands-greater-transparency-from-legal-service-providers
Lammy Review: racial bias in the criminal justice system
In this blog, I noted (Feb 2016) the appointment of the MP for Tottenham, David Lammy, to lead a review of racial bias in the criminal justice system. He has now published his ’emerging findings’ in a letter he has sent to the Prime Minister. His final report is expected in 2017. The Press Release states:
The review commissioned an analysis paper looking at disproportionality in the criminal justice system. One finding was that for every 100 white women handed custodial sentences at Crown Courts for drug offences, 227 black women were sentenced to custody. For black men, this figure is 141 for every 100 white men.
Among all those found guilty at Crown Court in 2014, 112 black men were sentenced to custody for every 100 white men .
The disproportionality analysis also found that, among those found guilty, a greater proportion of black women were sentenced to custody at Crown Court than white women.
Other notable findings highlighted today from the disproportionality analysis and the wider Lammy review include:
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Of those convicted at Magistrates’ Court for sexual offences, 208 black men and 193 Asian men received custodial sentences for every 100 white men.
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BAME defendants are more likely than their white counterparts to be tried at Crown Court – with young black men around 56% more likely than their white counterparts;
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BAME men were more than 16% more likely than white men to be remanded in custody;
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BAME men were 52% percent more likely than white men to plead ‘not guilty’ at crown court;
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In prisons, BAME males are almost five times more likely to be housed in high security for public order offences than white men, and
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Mixed ethnic men and women were more likely than white men and women to have adjudications for breaching prison discipline brought against them – but less likely to have those adjudications proven when reviewed.
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51% of the UK-born BAME population agree that ‘the criminal justice system discriminates against particular groups’, compared to 35% of the UK-born white population;
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41% of youth prisoners are from minorities backgrounds, compared with 25% ten years ago, despite prisoner numbers falling by some 66% in that time;
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The number of Muslim prisoners has almost doubled in the last decade.
The next stage for the review will be to examine the reasons for these figures and to explore whether they reveal bias in the system against those from BAME groups.
It has also been announced that Lammy will – as part of this exercise – take a closer look at diversity in the judiciary and the numbers of judges from BAME groups.
The details of the emerging findings are at https://www.gov.uk/government/news/lammy-review-emerging-findings-published
Diversity in the Judiciary
For a number of years, it has been accepted that there should be greater diversity among the judiciary. The gender and ethnicity of the judiciary should broadly reflect the gender and ethnicity of the population as a whole. There has been considerable effort to more the judiciary away from their ‘white, male, upper middle class’ image.
The present Lord Chief Justice is determined that progress towards a more balanced judiciary should be advanced. The latest Judicial Diversity Statistics, published in July 2016, indicate that some progress has been made.
The headline findings are that in April 2016:
- The number of woman Court of Appeal Judges remains the same as last year at eight out of 39 (21 per cent).
- Twenty two out of 106 High Court Judges are women (21 per cent). In April 2015 the number was 21 (20 per cent).
- In the courts the percentage of female judges has increased from April 2015 to April 2016 from 25% to 28%. In tribunals it remained stable at 45%.
- The number of female Circuit Judges increased from 146 in April 2015 to 160 in April 2016 (from 23 per cent to 26 per cent)
- More than half (51 per cent) of the 85 court judges who are under 40 years of age are women (53% last year). In tribunals, 64 per cent of the 56 judges under 40 are women (56% last year)
- The percentage of judges who identify as Black, Asian and Minority Ethnic (BAME)is 5% in courts (6% last year), and in tribunals 9% (stable since 2015). This is higher for judges under 40 – 8% (6% last year) for courts and 14% (15% last year) for tribunals.
- A third (34%, compared with 36% in 2015) of court judges and two thirds (65%, compared with 67% in 2015) of tribunal judges are from non-barrister backgrounds. Judges in lower courts more likely to come from a non-barrister background.
The conclusions that may be drawn from these findings is that some progress has been made in the appointment of women as judges; but the numbers of BAME judges remain low.
In order to encourage applications, particularly from women and BAME candidates, the Judges Council has established a Judicial Diversity Committee, which undertakes different events and initiatives to encourage a wider range of candidates to apply for judicial appointment. They have recently published their first report.
Their work includes:
- sponsoring networking events;
- running a judicial shadowing programme;
- appointing judicial role models from the existing bench to provide advice and guidance to potential applicants.
One pilot initiative relates to developing ways to encouraging applications for appointment to the High Court bench from those who have not had practice experience as a barrister, including leading academics.
To see the Judicial Diversity Statistics, go to https://www.judiciary.gov.uk/wp-content/uploads/2016/07/judicial-diversity-statistics-2016-2.pdf.
The report of the Judicial Diversity Committee is at https://www.judiciary.gov.uk/wp-content/uploads/2016/07/judicial-diversity-committee-progress-report-13-16.pdf
Unregulated providers of legal services
Not all legal services are provided by lawyers or legal executives who are regulated by their professional bodies. There is a group of legal service providers who are not authorised and regulated under any legal sector specific legislation, but who are providing legal services for profit and as a significant focus of their work.
The Legal Services Board has recently (June 2016) published research on the work of this sector of the legal service market. The research looked in detail at will-writing, online divorce and intellectual property.
The Key Findings of the research were:
- For profit unregulated providers make up a small proportion of the legal services market. In the individual legal needs survey, they represented 4.5-5.5% of cases in which consumers paid for advice or representation.
- In contrast, not for profit providers, most of whom will be unregulated, accounted for approximately 37% of all legal problems where advice was sought.
- Benefits for consumers include lower prices and greater price transparency compared to regulated providers, innovation and service differentiation, and competitive impact on regulated providers.
- The main risks to consumers relate to consumers not making informed choices and misleading advertising claims. The research did not assess the technical quality of work.
- Consumer satisfaction with customer service is broadly comparable across regulated and unregulated providers – 84% versus 81% respectively.
- More than half of consumers who instruct for profit unregulated providers are aware of their regulatory status. Of those who don’t check, a significant proportion do not do so because they assume that they are regulated.
- There is a limited potential market for voluntary regulation beyond existing trade associations given the size of the market and low appetite for such initiatives among providers.
For the time being, at least, the policy conclusions for the Legal Services Board are that
- The for profit unregulated sector is smaller than expected, although in some segments these providers have gained a significant market share.
- Based on the evidence of benefits and risks to consumers and limited potential market for voluntary regulation beyond existing trade associations, the LSB will monitor developments but will not pursue a voluntary arrangement under the Legal Services Act.
- Consumers should be encouraged to check whether or not providers are regulated.
In other words no active intervention for the moment.
Notwithstanding these broad conclusions, the research did look more closely at the work of for profit unregulated providers in three areas: will-writing; divorce; and intellectual property, where not insignificant amounts of legal services work was being undertaken by unregulated providers – around 10% of the work. The dominance in the area of divorce by 5 on-line companies offering very cheap services can be particularly noted.
My guess is that, so long as the unregulated sector provides cost-effective services, with which consumers are satisfied, the lack of regulation will continue. But if there is a highly publicised scandal, then the regulatory context will change.
For the research go to https://research.legalservicesboard.org.uk/wp-content/media/Economic-insight-in-depth-unregulated-research.pdf
Martin Partington: Introduction to the English Legal System 15th ed 2021
Oxford University Press Learning Link Resources
Martin Partington: Spotlight on the Justice System 