No one size fits all: not-for-profit legal services providers cannot be treated like law firms

Every law firm in the country will be affected by the arrival of alternative business structures, warned SRA chair Charles Plant recently. Replace the words “law firms” with “law clinics” and you get a much more accurate warning.

Assessment of the Legal Services Act 2007, which introduced ABS to England and Wales, tends to focus on ‘Tesco law’ and the advantages and disadvantages of non-lawyers owning law firms and providing legal services to the public..

But the Act will have an equally distressing impact on not-for-profit organisations who provide legal services ?to the public, such as legal clinics based ?at universities.

I am an academic and a solicitor. I am employed by a University to work full time in a pro bono legal clinic where I supervise, teach and train final year law students who advise and represent members of the public. When ABS was introduced it was merely a topic for discussion with students about the changes to the profession. It was an interesting subject which students were often tested on when applying for jobs. It was not, however, something that, rightly or wrongly, troubled me professionally. After all, ABS was all about supermarkets, wasn’t it? When Co-operative Legal Services launched as an ABS back in March that seemed to confirm that assumption.

So let’s, for one moment, ignore the hype about opening the floodgates and look closer at the Act and the subsequent literature provided by the SRA and LSB. For only then does it become clear that those who provide legal services via non-commercial vehicles such as university-based pro bono clinics need to have detailed knowledge of the Act and ABS. Not just ?so we can teach our students about this brave new world, but because it affects ?the running of our clinics directly.

Reserved activities

If you are a ‘special body’ – a not-for-profit body, an independent trade union, a community interest company or a low risk body – which provides legal services to the public and those services include reserved legal activities then you will need to become an ABS once the grace period has ended ?in 2014.

After this, a tailored ABS regime will be created, although there is currently no guidance on what this regime will look like, require and, perhaps most importantly, cost.

Section 12 of the Act lists the legal activities that are deemed to be reserved. They are:

? Probate activities: preparing probate papers in England and Wales.

? Reserved instrument activities: preparing any instrument of transfer or charge for the purposes of the Land Registration Act 2002, making an application or lodging a document for registration under that Act and/or preparing any other instrument relating to real or personal estate for the purposes of the law of England and Wales or instrument relating to court proceedings in England and Wales.

? Notarial activities: any activities customarily carried on by virtue of enrolment as a notary in accordance with section 1 of the Public Notaries Act 1801.

? Administration of oaths: the exercise of powers conferred on a commissioner of oaths by the Commissioners for Oaths Act 1889, the Commissioners for Oaths Act 1891 or section 24 of the Stamp Duties Management Act 1891.

? Exercise of the right of audience: the right to appear before and address a court including the right to call and examine witnesses.

? Conduct of litigation: issuing proceedings before any court in England and Wales, the commencement, prosecution and defence of such proceedings and the performance of any ancillary functions in relation to such proceedings (such as entering appearances to actions).

?Understanding the scope of the list of reserved activities is important because if an organisation does not employ an authorised person, such as solicitor or barrister, then it cannot carry out reserved legal activities. If the organisation does employ an authorised person and it is providing reserved legal activities then, under the Act, it will have to apply for a licence to be regulated as an entity. As the Legal Services Board consultation paper on the regulation of special bodies states, “the LSA clearly envisaged that special bodies/non-commercial bodies should be regulated as special kinds of ABS.”

My question is, how many of these special or non-commercial bodies want and/or can become an ABS and all that being an ABS entails?

This is a particularly pertinent question for university-based clinics. According to recent LawWorks statistics, there are in excess of 20 pro bono clinics based at universities and other higher education establishments. These organisations are large, complex entities where understanding of the regulatory aspects of clinical work may differ from person to person depending on their day-to-day roles and their closeness to the clinic.

The basic starting point for those educational establishments is to determine whether they (a) are carrying out reserved legal activities and (b) fall within the special body exemption.

Most universities are exempt charities as defined in the Charities Act 1993 (as amended by the Charities Act 1996) and, as not-for-profit organisations, fall within the exemption under section 23 of the Act. They, therefore, have time (at least until April 2014) to prepare for licensing and the implementation of an ABS regime for special bodies. It also follows that for-profit bodies, such as private law school providers, do not have a structure that on the face of it falls within the section 23 exemptions. Those bodies do not benefit from the transitional grace period. Therefore, if they are currently carrying on reserved legal activities they should already be licensed to do so.

Not commercial providers

For some, becoming an ABS is an exciting pathway to expansion and additional funding. Two months ago Solicitors Journal that a survey by accountants HW Fisher & Co of 75 small and medium-sized firms revealed that those who had considered external investment by way of ABS had risen from 11 to 26 per cent during the course of the past year.

University law clinics, however, are not small to medium-sized firms. They are not the Co-operatives of the not-for-profit world. They are pro bono legal services providers based in an educational establishment, benefitting the clients that come to them for help and the students that learn through the hands-on approach that clinical legal education provides.

The ABS regime for special bodies has yet to be decided. Yet, if we assume that it will look similar to the ABS regime already in place for commercial providers then we are looking at significantly increased administrative burden (both initially through the application process and then continuously through the years), the creation of new roles and responsibilities which do not naturally fit within an academic environment and the internal structure of higher education providers and fees. It should be noted that as of July 2012 the SRA had no comments to make on the likely cost to special bodies of applying for a licence.

‘Poor service’

On 23 April 2012, the Legal Services Board released a 41 page consultation paper entitled “Regulation of special bodies/non-commercial bodies”. For some, this was the first formal and most detailed document to date on the concept of special bodies becoming ABSs.

It was this consultation paper that ?put forward the idea that the transitional grace period should end in April 2014, rather than April 2013 as first mooted. ?This was a welcome proposal. However, there were a number of assertions put forward by the paper that were a cause for concern. Primarily, the paper advocated the idea that special bodies such as pro bono legal clinics, Citizens Advice Bureaux and other free legal advice providers provided poorly thought through, poorly administered and poorly supervised work and advice. It spoke of vulnerable and disempowered consumers and suggested that the current regulatory regime for special bodies was doing those consumers a disservice.

One could argue, albeit controversially, that the Legal Services Board knows that not-for-profit organisations are going to have to pick up all of those vulnerable and disempowered consumers who are not going to have the benefit of legal aid and they are now concerned that there isn’t enough regulation of those bodies.

This assertion is backed up by one of ?the key proposals in the consultation paper: the addition of general legal advice to the list of reserved legal activities under section 12 of the Act. In the paper the LSB clearly states that “if we reach the view that general legal advice should be reserved this is likely to have a significant impact on special bodies because all organisations providing services within the definition of general legal advice would then be required to obtain a licence”.

The well rehearsed notion about ABS being about supermarkets entering the legal arena, the expansion of funding opportunities and better choice for consumers flies completely out of the window at this point.

The LSB received 21 responses to the consultation paper, including one from myself on behalf of Northumbria University Law School. I am pleased to say that the majority shared the concerns that I raised in that response and this article. We now ?await the formal response from the Legal Services Board.

Charles Plant made another interesting comment earlier this year. He said that those who brought about the introduction of ABSs can “never have foreseen the scope of change which we now observe in 2012”. He is absolutely right. They could never have foreseen that these changes would lead to unnecessary, burdensome and costly regulation of those service providers who seek to empower the disempowered and defend the vulnerable.