Level playing field

The days when local government solicitors were seen by some as an inferior branch of the legal profession are at an end. There are now not only exciting career paths, top quality work, not to mention the best final salary pension scheme in the country, but the stock of local government solicitors within the legal profession has never been higher. With the introduction next spring of the new Code of Conduct, local government lawyers are set for an even greater resurgence. The Law Society is set to lift the inequitable, outdated and irrational treatment of them with regard to their ability to work for clients other than their employers.

External markets

In recent years, a number of local authority legal departments have developed a thriving external market. Kent County Council Legal Services, for example, has built a well established and flourishing legal practice, delivering services to over 150 external public sector clients, which last year generated income of over £700,000.

This is primarily delivered under the powers contained in s 1 of the Local Authorities (Goods and Services) Act 1970. This empowers a local authority to make agreements with other public bodies for the supply of goods and services. There is nothing in the section to confine it to non profit-making operations, nor to capacity that is surplus to requirements. Indeed, the Department of the Environment, in a letter dated 7 December 1995, stated that authorities may properly use the s 1 power to trade for profit.

Not content with this, local authorities are placing increasing pressure on their lawyers to generate even greater external income by charging or trading with the wider market, for example, council employees, members of the public, as well as private and voluntary sector organisations.

While the statutory powers for local government to charge and trade are already well established under ss 93 and 95 of the Local Government Act 2003, and in theory could easily apply to legal services, in reality there are several restrictions imposed on their ability to do so, primarily by the legal profession's own governing bodies.

Section 93 confers a power to charge a person for a discretionary service, ie, one that the Council has power to provide under primary or secondary legislation, but is not obliged to provide to that person, eg, legal services.

Charging under s 93 is primarily for services provided under the well-being powers contained in s 2 of the Local Government Act 2000, thus potentially opening up a wide range of new customers, including the private and voluntary sectors and individuals.

Section 95 confers a power to trade through a company in activities related to an authority's functions. The power is to do for a commercial purpose anything which the authority is authorised to do '“ including, in theory at least, the provision of legal services.

However, Rule 4 of the Solicitors' Practice Rules 1990 provides that a solicitor who is an employee of a non-solicitor shall not work as solicitor for anyone other than their employer, except as permitted by the Employed Solicitors Code.

Rule 4 was introduced in 1987. Before this, it was assumed that a combination of Rule 1 (the anti-touting rule) and Rule 3 (a rule preventing the sharing of fees that may arise from solicitors working for customers of the employer) of the 1936-1972 Practice Rules and a general understanding of the conflict principles would achieve largely the same effect.

There were, however, general waivers allowing employed solicitors to act for third parties in certain circumstances. But when the 1998 Practice Rules were drafted, the Master of the Rolls took the view that the general waivers were ultra vires because they circumvented the statutory rule making process, which requires the MR's consent. Therefore, they had to be incorporated into the Rules as 'exceptions.'

The Law Society has for some time been considering lifting the ban on in-house solicitors providing a service to the commercial sector, on the grounds that Rule 4 is a potential contravention of competition legislation. This is a view shared by the Office of Fair Trading, whose Director General stated that he expected to see steps taken towards the removal of the restriction within 12 months of their report (March 2001).

Indeed, the Council of the Law Society itself confirmed on 21 March 2002 that its ultimate goal was to enable employed solicitors to provide legal services direct to the public, as long as consumers are guaranteed the same level of protection as is offered to the clients of solicitors in private practice. The Council voted to open immediate talks with government on the necessary legislation to bring this major development about.

This has opened the way for many large corporations and financial institutions such as banks, building societies, insurance companies and claims management companies to offer legal services directly to the public through their employed lawyers. But could local government solicitors benefit from the same relaxation of the rules?

Under the provisions of the Employed Solicitors' Code 1990, solicitors employed in local government are effectively prohibited from acting for persons other than their employers except in specific cases. Specifically, Rule 6(a) provides as follows:

"6. Local government

A solicitor employed in local government may act:

(a) for another public body or statutory officer to which the employer is statutorily empowered to provide legal services.'

Under the current Code, therefore, a solicitor employed in local government may act for (and charge):

• another public body to which the employer is statutorily empowered to provide legal services (eg, under the 1970 Act);
• companies in which the authority is a shareholder (eg, a trading company set up under s 95);
• a trade association of which the employer is a member;
• lenders on certain remortgages; and
• a club, association, pension fund or other scheme operated for the benefit of employees of the employer.

Local government solicitors cannot, however, act for council employees unless it is in connection with their work and provided they don't charge for it. Similarly, in non-contentious matters, they can provide services to a charity or voluntary organisation whose objects relate wholly or mainly to the employer's area, provided again there is no charge.

Expanding client bases

As a consequence of s 93 of the 2003 Act, there are very few situations or client groups that local authority lawyers cannot theoretically target in order to expand
their client base. However, in light of the Code's application, the ability for them thereby to generate additional external income is extremely limited. It would either require the establishment of a local authority company under s 95 in order to deliver legal services using the well-being powers, the creation of teams of non-solicitor lawyers to handle private client work, or a revision of the Code.

The first of these options is not
available at present. Under the law
as it stands, a solicitors' firm can be a
limited company, but according to the
Law Society this must be a body recognised under s 9 of the Administration of Justice Act 1985. The Practice Rules require all members and directors of such a company to be lawyers. So, at present, a local
authority cannot own (or part own) such
a company.

Under the Legal Services Bill currently going through Parliament, it will be possible for non-lawyers to have interests in corporate legal firms. Indeed, in April 2006, the Department for Constitutional Affairs confirmed that no restrictions are envisaged under the new regime set out in the Bill, restricting local authority solicitors from tendering for work in the private sector. However:

• any 'material interest' (ie, 10 per cent
• or such lower amount as specified in
• the rules) of a non-lawyer must be approved in writing by the Licensing Authority
• a non-lawyer cannot have an interest in another such body unless approved
• there may be a requirement for particular restrictions on non-lawyers having higher levels of interest (not yet specified)
• the body must at all times have a head
• of legal practice who is in their own right an authorised person (ie, a solicitor) and a head of finance and administration, both of whom must be approved by the Licensing Authority
• a licensed body may carry on a licensed activity 'only through a person who is entitled to carry on the activity'.

The devil will be in the detail of what rules the licensing bodies will be playing by. Whether non-lawyers '“ in particular, local authorities '“ can own legal firms will depend on the levels of interest specified. Certainly, we are expecting lawyers to be entitled to take in non-lawyers as shareholders up to a certain point.

Under s 157, the main parts of the Act will come into force at a date to be specified in an order. Assuming that the Bill is passed into law by Spring 2007, the Law Society as licensing body will then have to get consent of the Legal Services Board before it issues its rules for licensed bodies. One would assume that some time mid-2008 is the earliest any licensed body could sensibly operate.

However, a simpler and more pragmatic solution may be available much sooner than that. The Law Society's Code of Conduct and Recognised Bodies Regulations 2004 are due to go before the Law Society Council in December, after which they will require approval by the Master of the Rolls and the Lord Chancellor, before coming into force in Spring 2007. Assuming they are approved as currently drafted, they will have the effect of revising the 1990 Code. The most significant change is found in new cl 13.08 (which replaces the old cl 6(a) of the 1990 Code), so that the new position will be as follows:

"13.08 Local government

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.'

The simple replacement of the words 'another public body' in r 6(a), with 'another organisation or person' in r 13.08(a) will, therefore, immediately open up the possibility of local authority solicitors providing (and charging for) legal services to anyone permitted under
s 93 of the 2003 Act, and not restricting them to providing services only to public bodies recognised under the 1970 Act.

At last, there will be a definite sense of parity and recognition for local government solicitors, and the opportunity for them to practise on a larger '“ and more level '“ playing field.