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SRA guidance to stop many council legal trading activities "dead in their tracks"

The Solicitors Regulation Authority last month published long-awaited guidance on a key section of the Legal Services Act 2007 that it is claimed will stop many local authorities’ legal services trading activities "dead in their tracks".

In December 2015 the SRA had suggested that local government legal departments which generated extra income by providing ‘reserved legal services’ – including litigation and court advocacy – to other public bodies beyond their local area were only permitted to do so if they used an authorised entity such as an alternative business structure.

The regulator’s comments caused disquiet amongst council legal teams which were seeking to provide such legal services to other public bodies outside their geographical area.

A key part of the test in s.15 LSA 2007 is whether services are being provided – with or without a view to profit – to ‘the public or a section of the public’.

In guidance published last month the SRA looks to address this question, saying:

"5. Are you providing the services (with or without a view to profit) to the public or section of the public?

What is meant by the “public or a section of the public” is not defined in the LSA, although it has been considered by the courts in other contexts (for example, discrimination).

In order to understand what is meant by this phrase it is necessary to consider the overall purpose of these particular statutory provisions. Firstly, it is important to note that a key overall purpose of the Act is to safeguard the protection of the public generally, and consumers of legal services in particular, and it is in this context that the authorisation requirements for employers must be considered. The Explanatory Notes to section 15 explain the intended effect: "for example, that where a body employs lawyers to provide in-house legal services to that body or to certain persons connected to the body, but not to the public or a section of the public, the body in question will not need to be an authorised person...”.

Therefore the question will not depend on the characteristics of the client (whether an individual or an organisation, or whether within the public or private sector for example). Rather, the relevant question to ask is: are you only providing the services to your employer or a person (individual or organisation) connected to your employer?

In some situations this will be obvious, for example where the person is:

a. a holding, associated or subsidiary company of your employer

b. a partnership, LLP, syndicate or joint venture company in which your employer has an interest;

c. a present or former employee, manager, director, company secretary, board member or trustee of your employer, where the matter relates to their work in that capacity

d. an association, club or pension fund operated for the benefit of the employees of your employer.

In other situations, deciding what constitutes “the public or a section of the public” will not always be easy to answer, but will also depend on a clear and specific relationship your client has with your employer.

This will ultimately be a matter to be determined by the Courts. However, it is useful to bear in mind the following key indicators:

a. if your employer is a club or association, and you are providing services to its members, the size of its membership, and whether it has rules allowing for genuine selection of members - case law in the discrimination field suggests that this would mean that members are not the public or a section of the public

b. how the person to whom you are providing services came to you/the employer – they are likely to fall within the definition of public or a section of the public if they come to you haphazardly or as a result of marketing your services

c. conversely, if the services are only provided to a closely defined group with a specific relationship with the employer, they are likely not to be classed as a section of the public, for example where a local authority enters into a joint venture to share services with one or more neighbouring authorities

d. whether the services are provided to the public at large, or members of a disparate group united by a particular feature but not selected in this way - for example prisoners or asylum detainees, or those affected by a breach of trading standards legislation."

Geoff Wild, chief executive of Invicta Law (the alternative business structure wholly owned by Kent County Council, said the guidance "essentially followed the same position espoused by the SRA over the last few years".

He said: “The crucial test has always been what amounts to ‘the public or a section of the public’. There is no obvious bright line that delineates ‘the public or a section of the public’ from some other group. Ultimately, it is up to the courts to decide if there is a dispute.

“However, the SRA’s guidance seeks to define this narrowly and confirms that the relevant question to ask is: are you only providing the services to your employer or a person (individual or organisation) connected to your employer? Various examples are provided, and if a clear and specific relationship between the client and the local authority cannot be demonstrated, then you are not permitted to act for them unless you are an authorised entity. This will effectively stop many local authority legal trading activities and initiatives dead in their tracks.”