Law Society loses battle to keep ABSs out of Compensation Fund

The Law Society has lost its uphill struggle to exclude ABSs from the Compensation Fund.

The Society had hoped that a ‘sunset clause’ in the Legal Services Act would remain in force for the next two years, allowing it to wash its hands of ABSs at the end of the period if it was not satisfied with the outcome of a review by the SRA.

But MPs on the delegated legislation committee this week passed an order to remove the clause, which would have ended the Law Society’s ability to make compensation arrangements for ABSs on 31 December 2012. The amendment was supported by both the SRA and the LSB.

Justice minister Helen Grant (pictured) told the committee: “A new sunset clause has not been included in this order to avoid imposing an artificial deadline on the development of alternative compensation proposals, which may not be in the best interests of consumers or practitioners.

“Although the SRA has committed to review the current compensation arrangements over the next two years, the review may result in changes to the current arrangements.

“Without knowing what those arrangements will be, it is difficult to estimate how long any changes may take to implement. The LSB will monitor the review, and expects the SRA to provide public indications of its progress.”

However, shadow justice minister Andy Slaughter said the order removing the clause was “rather bizarre”.

He went on: “When last year’s order was made, a sunset clause was put in it - so far, so good. The minister did not say this, but I would imagine that the purpose of the sunset clause was both to encourage the SRA to get on with its review and to set up a form of monitoring.

“That all appears to be sensible and sound, but of course the SRA failed to do that. The minister did not say much about why it failed or why the appropriate form of monitoring was the sunset clause.

“She may want to address those two points, but the main point that she needs to address is why, with the SRA having failed in what it set out to do in that time, the government propose that we simply allow nature to take its course with the SRA continuing at whatever speed it likes, however glacial that may be.”

Slaughter said “the penalty for failure, in this case, is to be let off”, which did not seem to be a “good motto for the Ministry of Justice”.

He asked what guarantee would there be that a review was conducted and said the logic of the government’s position was “inherently wrong” and the “Law Society is right”.

Grant replied that the order was a “reasonable amendment”, which would enable the Law Society to continue providing protection to consumers of ABS firms.

“It is important that we allow the existing arrangements to continue without any time restrictions until the SRA has completed the review,” she added.

A spokesman for the SRA said its policy team was preparing a pre-review document, which would be published by the end of the year. He said the regulator envisaged that the review would be a two-year process.