Practical and Legal Guidance for Assessing Capacity
Jul 20 2023
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In this article we deal with the question of what is permissible under the SRA's Handbook and the Legal Services Act 2007 for those local authorities looking to sell their services more widely.
Bevan Brittan has unique expertise in relation to the regulation of local authority in house teams. Partners from its local authority team and legal services regulatory team have been assisting local authority clients with their combined expertise on the often complex issues that arise in this area for nearly 10 years. In that time they have advised the first two local authorities that obtained an ABS license from the SRA and continue to advise a number of local authorities on the structure of their in house teams.
In this article we deal with the question of what is permissible under the SRA's Handbook and the Legal Services Act 2007 for those local authorities looking to sell their services more widely. This article will focus on solicitors but similar (but not identical) provisions apply to Barristers under the BSB Handbook.
It is often not fully understood that the vast majority of legal advice is not regulated and can be carried out by anyone. This includes legal advice, representation in most tribunals and drafting most contracts that do not involve land. The regulatory framework only relates to: (1) advocacy in a court; (2) litigation in a court; (3) preparing reserved instruments which generally relate to land but can confusingly include court pleadings; (4) taking out a grant of probate; (5) notarial activities (ie acting as a notary public); and (6) acting as a commissioner for oaths. Immigration advice is also regulated although it is not technically a reserved legal activity.
The scope and boundaries of the reserved legal activities is complex but if the services a local authority intends to sell do not fall within them, it is likely that they can sell their services to anyone to whom the local authority is statutorily empowered to provide services. When providing such services solicitors employed by the authority will be bound by the obligations under the SRA Handbook and may for example need to consider whether the authority has adequate insurance arrangements.
However, many legal services provided by local authorities do include an element of reserved legal activities, particularly childcare, so the issue is whether you can provide these services to third parties. This involves an analysis of the SRA Handbook and Section 15 of the Legal Services Act 2007.
The restrictions for local authority solicitors are contained in Rule 4.15 of the SRA Practice Framework Rules 2011. The starting point is that these provisions pre-date the Legal Services Act 2007 in the sense that they are old rules that are simply carried over into the 2011 SRA Handbook. They therefore do not draw a distinction between services that fall outside the reserved legal activities and those that do not. These rules were drafted in the 1970s when the vires of a local authority were more constrained. As 4.15 seeks to restrain local authority solicitors to doing work that the authority can lawfully do, the evolving expansion of local authority vires has had a similar effect on what solicitors in local authorities can do. Almost to the point where there is little real limitation under Rule 4.15 of the Practice Framework Rules. These provide:
"4.15 If you are employed in local government you may act:
(a) for another organisation or person to which or to whom the employer is statutorily empowered to provide legal services, subject to the conditions in (b) to (g) below;
(b) for a member or former member of the local authority, provided that:
(i) the matter relates to or arises out of the work of the member in that capacity;
(ii) the matter does not relate to a claim arising as a result of a personal injury to the member;
(iii) you are satisfied that the member does not wish to instruct some other lawyer; and
(iv) no charge is made for your work unless those costs are recoverable from some other source;
(c) for a company limited by shares or guarantee of which:
(i) the employer or nominee of the employer is a shareholder or guarantor; or
(ii) you are, or an officer of the employer is, appointed by the employer as an officer of the company, provided the employer is acting in pursuance of its statutory powers;
(d) for lenders in connection with new mortgages arising from the redemption of mortgages to the local authority, provided:
(i) neither you nor any other employee acts on behalf of the borrowers; and
(ii) the borrowers are given the opportunity to be independently advised by a qualified conveyancer of their choice;
(e) for a charity or voluntary organisation whose objects relate wholly or partly to the employer's area;
(f) for a patient who is the subject of a Court of Protection Order where you are acting for a work colleague (under Rule 4.4 to 4.6 above) who is appointed as deputy for the patient; or
(g) for a child or young person subject to a Care Order in favour of the employer on an application to the Criminal Injuries Compensation Authority."
As previously indicated, the key consideration in Rule 4.15 is whether the local authority has a statutory power to provide legal services to third parties (Rule 4.15(a)). The two most relevant powers are probably the Local Authorities (Goods and Services) Act 1970 permitting trade for profit with a host of other publications; and the general power of competence in section 1(1) of the Localism Act 2011 (LA 2011) which provides that “a local authority has power to do anything that individuals generally may do” (General Power of Competence).
However, there are limitations on the General Power of Competence which will have practical implications most importantly section 3 that limits charging to cost recovery, and section 4 which provides that where in exercising the General Power of Competence the local authority does things primarily for a commercial purpose, the authority must do them through a company. “For a commercial purpose” is not defined in the LA 2011. It may be analogous to "trading" in section 95 of the Local Government Act 2003. If the purpose of the activity is to make a profit then that would be acting for a commercial purpose. Further, a commercial purpose is also likely to encompass activities which may not be initially profitable but where the ultimate aim is to generate profit. It follows that in many cases in order to properly rely on the General Power of Competence the local authority would need to set up a company (or community benefit society) to provide the legal services.
If the restrictions on local authority solicitors began and ended with Rule 4.15 of the SRA Practice Framework Rules then scope for selling services would be very wide. However, even if the Rule 4.15 test is met, consideration needs to be given to Section 15 of the Legal Services Act 2007 which can have the effect of making illegal what would be otherwise permissible under Rule 4.15. This is made clear from the wording of the SRA Practice Framework Rules themselves:
"The SRA's provisions cannot and do not provide exemption for employers from the provisions of section 14 of the Legal Services Act [ie an offence to carry out a reserved legal activity if not entitled]. It is a matter of law and fact whether an employer comes within section 15(4)." *
Section 15's purpose is to define the boundary between those entities that need to be regulated and those that do not. It states:
“15 Carrying on of a reserved legal activity: employers and employees etc
(1) This section applies for the interpretation of references in this Act to a person carrying on an activity which is a reserved legal activity.
(2) References to a person carrying on an activity which is a reserved legal activity include a person (“E”) who—
(a) is an employee of a person (“P”), and
(b) carries on the activity in E's capacity as such an employee.
(3) For the purposes of subsection (2), it is irrelevant whether P is entitled to carry on the activity.
(4) P does not carry on an activity (“the relevant activity”) which is a reserved legal activity by virtue of E carrying it on in E's capacity as an employee of P, unless the provision of relevant services to the public or a section of the public (with or without a view to profit) is part of P's business.
(5) Relevant services are services which consist of or include the carrying on of the relevant activity by employees of P in their capacity as employees of P.
(9) Subject to that, the Lord Chancellor may by order make provision about—
(a) what does or does not constitute a section of the public;
(b) the circumstances in which the provision of relevant services to the public or a section of the public does or does not form part of P's business.
(10) The Lord Chancellor may make an order under subsection (7), (8) or (9) only on the recommendation of the Board.
(11) If P is a body, references to an employee of P include references to a manager of P.
[… ]" (our emphasis)
Whilst the wording is not entirely straightforward, the effect of Section 15 is to apply two tests. The first test is whether the unauthorised entity such as a local authority is carrying out reserved legal activities. If not, Section 15 does not apply and the local authority's legal team is free to take on work provided that it is in accordance with the vires of the authority and Rule 4.15 of the SRA Practice Framework Rules. If local authority solicitors are intending to provide services that include reserved legal activities to third parties they need to be satisfied that they are not providing those services to the public or a section of the public. This is the key issue.
The Legal Services Act does not define what the public or the section of the public means. Whilst the SRA Glossary does contain a definition of "member of the public" this is specifically limited to the SRA Rules relating to publicity (Chapter 8) so it has no wider meaning and of course could not be determinative as to the construction of a criminal statutory provision. There is no doubt that this lack of certainty as to meaning creates difficulties but there is some assistance to be gained from analogous statutory provisions.
In Oppenheim v Tobacco Securities Trust Co Ltd  AC 297, HL, it was held that in order for a class of persons to be regarded as a ‘section of the community’ (so as to satisfy the public benefit test), that the words "section of the community" have no special sanctity, but they indicate (a) that the possible beneficiaries must not be numerically negligible, and (b) that the quality which distinguishes them from other members of the community, so that they form by themselves a section of it, must be a quality which does not depend on their relationship to a particular individual (so that the children of employees or former employees of a particular employer did not constitute a ‘section of the community’ for this purpose). Cases in the field of discrimination suggest that (a) a club or association does not provide services to the public or a section of the public if it has rules allowing for genuine selection of members (Charter v Race Relations Board  AC 868 HL); and (b) on the other hand, particular groups not selected in this way such as prisoners or asylum detainees will normally be a section of the public (R (Gill v Secretary of State for Justice  EWHC 364 (Admin)) and (c) foster parents are providing facilities to a section of the public, namely the children in care of a local authority, because those children come haphazardly to the local authority from the public at large (Applin v Race Relations Board  AC 259, HL).
Absent an order by the Lord Chancellor, which is possible under the Legal Services Act, the courts would adopt a common sense approach and look at the nature and extent of the services to be provided. It is notable that the Explanatory Notes to section 15, LSA 2007 refer to the in-house lawyers providing legal services to their employing body or to "certain persons connected to the body, but not to the public or section of the public, the body in question will not need to be an authorised person" (our emphasis).
Before considering the likely meaning it is worth observing that Section 15 is not just about local authority lawyers. It forms part of the regulatory framework and applies just as much to solicitors and other authorised persons working in a wide range of roles from in house commercial organisations to membership organisations such as the RAC and the AA. Any formulation of the test therefore needs to be applicable across the board.
In the local authority context there are broadly four categories of clients that a local authority may seek to act for. (1) other local authorities; (2) other public bodies; (3) commercial organisations; and (4) individuals. Whether a particular client is or is not part of the public or a section of the public will depend on the facts and circumstances of each case. The likely relevant factors will be: (1) whether there is a relationship between the potential client and the local authority that is independent of any legal services relationship; (2) the circumstances in which the client came to seek legal advice; (3) the geographical proximity to the local authority; (4) the nature of the legal services provided. So, for example, it might be possible for the local authority to act for a commercial JV partner of the local authority in a property transaction (assuming there was no conflict) because the existing relationship means that the commercial organisation is not a section of the public. Conversely, there may be circumstances where the relationship with another local authority is so remote that they constitute a section of the public.
It is therefore difficult to draw hard and clear lines. Nonetheless, the further one gets from the local authority family; geographical proximity; and/or organisations where there is a pre-existing relationship with the local authority then the less likely it is that the local authority legal team can act. It seems unlikely that the mere fact that a potential client sits within the public sector will be enough to take them outside the definition of the public or section of the public given the size of the public sector, its indeterminate boundaries and its varied nature. There are thousands of public bodies under the Goods and Services Act for example. There will probably need to be an additional factor that creates proximity.
Of course if the local authority does want to act for a wider group of clients then they are able to apply to the SRA for a license to carry out reserved legal activities to anyone which resolves this issue.
Iain Miller is a Public Law and Regulatory Partner at Bevan Brittan LLP
He is Joint General Editor of Cordery on Legal Services the Leading textbook on legal services regulation and co-editor of Butterworth's Guide to the Legal Services Act.
* Available via this weblink: http://www.sra.org.uk/in-house/