human rights, 'arranged' marriages and nullity law: when do 'force', parental
Denning Law Journal 2014 Vol 26 pp 98 - 148
CONSUMER CAPTURE AND THE LEGAL
SERVICES ACT 2007
Tim Sinnamon*
1. INTRODUCTION
It is now nearly 7 years since the Legal Services Act 2007 (LSA)1 was
brought onto the statute books.2 It is now 5 years since the major
provisions of the Act became effective.3 For those unfamiliar with the
Act, it is a blockbuster piece of legislation4 which in its entirety runs to
214 sections (covering 120 pages) and 24 Schedules which make up the
remainder of the total 389 pages. The LSA 2007 sought to fundamentally
recalibrate the regulation of the legal services market. To achieve this, the
Act introduced a new tier of oversight regulation, above the then existing
regulators of legal services.5 This new oversight regulator, called the
Legal Services Board (LSB) is armed with an arsenal of statutory powers.
The LSA 2007 also established a new ombudsman in the form of the
Office of Legal Complaints.6 Potentially the most contentious change
brought about by the LSA 2007 was that it paved the way for new
methods of practising law,7 including, Alternative Business Structures
* Dr Tim Sinnamon, BA(Hons), PgDip, LLM PgCAP, PhD, FHEA, Lecturer in
Law, Buckingham Law School, University of Buckingham, Buckingham, MK18
1EG. Email: tim.sinnamon@buckingham.ac.uk.
1 Legal Services Act 2007 (LSA 2007).
2 Ibid. Received Royal Assent on the 30 October 2007.
3 The Legal Services Board came into being on the 1 January 2009. It became
fully operational on the 1 January 2010.
4 James Thorne and Ian Miller, Guide to the Legal Services Act (Lexis Nexis
2009).
5 Now termed ‘Approved Regulators’: The Law Society, The General Council of
the Bar, The Master of Faculties, The Chartered Institute of Legal Executives,
The Chartered Institute of Patent Attorneys, The Institute of Trade Mark
Attorneys, The Association of Law Costs Draftsmen; The Council for Licensed
Conveyancers.
6 LSA 2007, pt 6.
7 Ibid pt 5. It should be noted that Legal Disciplinary Partnership and Multi-
disciplinary Partnership were previously provided for, in a limited way, in the
Administration of Justice Act 1986 and the Courts and Legal Services Act 1992,
though no steps were substantively taken to develop them.
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THE DENNING LAW JOURNAL
(ABS) which, when fully developed will allow for what were commonly
referred to as multi-disciplinary practices, and much more. Currently the
authorised regulators of ABS8 permit non-lawyers to own legal service
providers and many more permutations of ownership and service delivery
than hitherto existed. At the time of writing 2909 ABS have been
authorised and regulated by the Solicitors Regulatory Authority since 26
March 2012. 43 ABS10 have been authorised and are regulated by the
Council for Licensed Conveyancers since 6 October 2011. IPReg11 who
regulates for and on behalf of CIPA12 and ITMA13 were approved by the
Ministry of Justice14 and the LSB to regulate ABS in December 2013. The
Bar announced on 27 June 2014 that it will move towards entity licencing,
though they have signalled that this will fall short of full ABS.15 The
Institute of Chartered Accountants in England and Wales (ICAEW) was
recommended to the Lord Chancellor by the LSB in December 2013 to be
accepted as an approved regulator for Probate and as a licensing authority
for ABS. The Lord Chancellor approved of this on the 6 March 2014
paving the way for ICAEW to become the first non-legal body to be able
to regulate probate services and licence ABS.16 ICAEW received assent to
regulate probate activities and licence ABS on the 14 August 2014.17
8 Ibid pt 5.
9 ‘Register of Licensed Bodies (ABS)’ (Solicitors Regulation Authority)
accessed 29 July 2014.
10 ‘Licensed Body (ABS) Register’ (Council for Licensed Conveyancers)
accessed 29 July 2014.
11 Intellectual Property Regulation Board.
12 Chartered Institute of Patent Attorneys.
13 Institute of Trade Mark Attorneys.
14 Neil Rose, ‘IPReg Poised to Become Licensing Authority Number 3’ (Legal
Futures, 10 December 2013) accessed 24 July 2014.
15 Catherine Baksi, ‘Bar Regulator Announces Move into Entity Licensing’ (Law
Society Gazette, 27 June 2014) accessed 14 August 2014; Nick Hilborne, ‘Barristers
Lay Out Plans for Range of New Entities’ (Legal Futures, 1 July 2014)
accessed 14 August 2014.
16 Neil Rose, ‘Grayling Gives Accountants ABS and Probate Green Light’ (Legal
Futures, 7 March 2014) accessed 15 August 2014.
17 Gazette Reporter, ‘ICAEW Approved to Regulate Probate and License ABS’
(Law Society Gazette, 14 August 2014)
99
http://www.sra.org.uk/absregister/
http://www.conveyancer.org.uk/absregister.php
http://www.lawgazette.co.uk/practice/ipreg-authorised-to-regulate-abs-entities/law/bar-regulator-announces-move-into-entity-licensing/5041910.article
http://www.lawgazette.co.uk/practice/ipreg-authorised-to-regulate-abs-entities/law/bar-regulator-announces-move-into-entity-licensing/5041910.article
http://www.lawgazette.co.uk/practice/ipreg-authorised-to-regulate-abs-entities/law/bar-regulator-announces-move-into-entity-licensing/5041910.article
http://www.legalfutures.co.uk/latest-news/barristers-lay-out-plans-range-new-entities
http://www.legalfutures.co.uk/latest-news/barristers-lay-out-plans-range-new-entities
http://www.legalfutures.co.uk/latest-news/grayling-gives-accountants-abs-probate-green-light
http://www.legalfutures.co.uk/latest-news/grayling-gives-accountants-abs-probate-green-light
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
These developments signal profound change and it is for this reason
that this paper examines, in part, the way in which regulation of the legal
services market is done. In particular it considers the regulatory objectives
included in the LSA 2007.18 The regulatory objectives run through the
LSA 2007 like the lettering in a stick of rock. There are over thirty
substantive references to the regulatory objectives in the Act. Far from
being a passive declaration of the purpose of the Act, the regulatory
objectives underpin the statutory obligations of the LSB19 and the
approved regulators.20 The LSB, the approved regulators, and the OLC21
are all obliged to act in a way that they consider appropriate for meeting
the regulatory objectives.22 The LSB23 and the OLC24 need to prove how
they have met the regulatory objectives in their annual reports. The LSB
has a considerable range of powers, including: setting approved regulators
performance targets,25 directions regarding actions that need to be taken,26
censuring approved regulators,27 giving intervention directions allowing
for the removal of a regulatory function from an approved regulator,28
and, most dramatically, removing an approved regulators licence to
regulate.29 Each of the foregoing powers rests on the LSB’s determination
as to how the approved regulators’ actions or omissions have affected one
or more of the regulatory objectives.
accessed 15 August 2014.
18 LSA 2007, pt 1, s 1.
19 Ibid s 3(2)(a).
20 Ibid s 28(2)(b).
21 Ibid s 118(2)(b).
22 The Regulatory Objectives are: (a) protecting and promoting the public
interest; (b) supporting the constitutional principle of the rule of law; (c)
improving access to justice; (d) protecting and promoting the interests of
consumers; (e) promoting competition in the provision of services within
subsection (2); (f) encouraging an independent, strong, diverse and effective legal
profession; (g) increase public understanding of the citizen’s legal rights and
duties; (h) promoting and maintaining adherence to the professional principles.
23 LSA 2007, s 6(2)(b).
24 Ibid s 118(2)(b).
25 Ibid s 31(2)(a).
26 Ibid s 32(4).
27 Ibid s 35.
28 Ibid s 41(1).
29 Ibid s 45.
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THE DENNING LAW JOURNAL
The importance attached to understanding what each regulatory
objective means is undeniable. Regulators and administrative authorities
are often charged with making complex judgements. In the context of the
LSA 2007, individual objectives, within a broad spectrum of regulatory
objectives, need to be rationalised, by the regulators, with each other.
These regulatory objectives, for reasons outlined throughout this paper,
and others,30 set the course for the regulation of legal services.
The introduction of regulatory objectives into the LSA 2007 was by
no means an uncontroversial move. There has been much discussion about
these regulatory objectives and it is not the intention of this paper to
revisit this.31 This paper considers two of the regulatory objectives,
namely: the objectives of “protecting and promoting the consumer
interest” and “protecting and promoting the public interest”. As this paper
will both argue, and demonstrate, attention appears to have been lavished
on the former at the expense of the latter. This paper argues that rather
than the LSB investing time and effort into understanding the public
interest, the consumer interest has become the focus of most, if not all
regulatory endeavours. The consumer interest has become firmly
embedded in the lexicon of the LSB to the exclusion of any meaningful
consideration of the public interest. This paper examines the approach of
the LSB to the consumer interest and argues that there is evidence to
suggest that the design of the regulatory structure and the process of
regulatory decision making is such that regulation is being potentially
captured by the consumer interest and those preoccupied with consumer
affairs and consumerism. It demonstrates how this attention is stimulated
by both the design of the LSA 2007 and, maybe, capture of the oversight
regulator & legal services regulation, not by the legal profession, as pre
the Act it was commonly argued, but by the LSCP, the consumer lobby
and the consumer interest. Moreover, this paper suggests that the LSB,
and to a degree, the regulatory arms of the “Approved Regulators” have
become “culturally captured.” This reinforces, as argued elsewhere by this
author,32 the point that there should be a more considered, evidence based
approach towards the public interest at the forefront of every regulatory
endeavour, before any consideration of the consumer interest. This paper
discusses in the next section what is required to found a claim of
regulatory capture. The second section analyses what the consumer
30 Laurel S Terry, Steve Mark and Tahlia Gordon, ‘Adopting Regulatory
Objectives for the Legal Profession’ (2012) 80 Fordham Law Review 2684.
31 Ibid.
32 Tim Sinnamon, ‘The Public Interest and the Legal Services Act 2007’ (PhD
thesis, University of Surrey 2013).
101
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
interest is, and establishes why pursuing it is not necessarily in the public
interest. The third section identifies a number of structural features of the
LSA 2007 which may, as a result of statutory creation, tilt regulation
towards the consumer interest. These factors are important to any overall
determination that capture of the legal services regulators has occurred.
The fourth section reviews a number of decisions taken by the LSB. The
final section draws together the points identified in the preceding sections
and draws conclusions.
2. REGULATORY CAPTURE AND THE CONSUMER
INTEREST
One of the intellectual arguments underpinning the developments that
led to the LSA 2007 was that the legal profession had captured regulation
for its own self-interest.33 Self-regulation by the professions was
lambasted from a number of quarters.34 A number of commentators
suggested that the regulatory environment at the time could be explained
by private interest theories of regulation or capture.35 Many of these
claims remain vulnerable to strict scrutiny especially as Stigler’s36 rather
arbitrary standard of causal inference, in connection with his private
interest theories of regulation have been uncritically embraced by a
subsequent generation of economists.37 This paper does not seek to unpack
these claims – rather, it argues, that if anything there has been, if ever
33 Richard Abel, English Lawyers Between the Market and State The Politics of
Professionalism (OUP 2004); David Clementi, Review of the Regulatory
Framework for Legal Services in England and Wales, Final Report (December
2004) 57-8; Robert Baldwin, Martin Cave and Kate Malleson, ‘Regulating Legal
Services: Time for the Big Bang?’ (2004) 67 MLR 787; OECD, Competition in
Professional Services (DAFFE/CLP 2000) 3-4; Iain Paterson and others,
‘Regulation of Professional Services’ (IHS, 2003)
accessed 22 July 2014.
34 Ibid.
35 Frank Stephen, ‘The Market Failure Justification for the Regulation of
Professional Services Markets and the Characteristics of Consumers’ in Claus
Dieter Ehlerman and Isabela Atanasiu (eds) European Competition Law Annual
2004: The Relationship Between Competition Law and (Liberal) Professions
(Hart Publishing 2004); Paterson (n 33).
36 George Stigler, ‘The Theory of Economic Regulation’ (1971) 2 Bell Journal of
Economics and Management Science 3.
37 Daniel Carpenter and David A Moss, Preventing Regulatory Capture, Special
Interest Influence and How to Limit it (Cambridge 2014) 8-9.
102
http://ec.europa.eu/competition/sectors/professional_services/studies/prof_services_ihs_part_1.pdf
http://ec.europa.eu/competition/sectors/professional_services/studies/prof_services_ihs_part_1.pdf
THE DENNING LAW JOURNAL
there was capture by the professions, a pendulum swing, not necessarily to
a neutral ground where regulation pursues policies free of capture, but,
that matters have now swung beyond this, to a situation whereby
regulation has become preoccupied with the consumer interest, as
constructed and interpreted by the LSB, LSCP and lobbyists on behalf of
discrete sections of the consumers of legal services.38
The argument that the LSB and regulators are now preoccupied by the
consumer interest is not a particularly new one. A number of claims have
been made to this end.39 Notably, Lord Neuberger has referred to
“consumer fundamentalism” and the “tyranny of the consumer interest.”40
As recently as the 20 June 2014 he spoke of the dangers of the LSB
regulating solely in favour of the consumer.41 This paper attempts to argue
that rather than these being unjustifiable claims, as the previous Chairman
of the LSB42 and current Chairwoman of the LSCP43 have tried to make
38 The construction of the consumer interest by the LSB and LSCP has been by
no means uniform or all embracing. It has concentrated on consumers of ‘regular
legal services’ – (conveyancing, probate, small business matters etc) and
vulnerable consumers (with specific impairments). It has not looked at the
consumer in a wider sense – including the Government, the Courts, large
businesses, society, the rule of law.
39 Jonathan Goldsmith, ‘The Core Values of the Legal Profession for Lawyers
Today and Tomorrow’ (2008) 28 North-Western Journal of International Law and
Business 441; Ruth Deech, ‘Regulating the Regulators’ (Gresham College, 23
May 2012) accessed 27 July 2014.
40 David Neuberger, ‘The Tyranny of the Consumer or the Rule of Law’ (Speech
by Lord Neuberger Master of the Rolls 25th Annual Bar Conference 6 November
2010); Neuberger D, ‘Professional Discipline – Challenges for the Future’ (Lord
Neuberger, Master of the Rolls, Keynote Speech, Disciplinary Conference, 5
February 2010).
41 ‘Lord Neuberger at a Conference of the Bar Councils of Northern Ireland and
Ireland, Belfast: The Future of the Bar’ (The Supreme Court, 20 June 2014)
accessed 14 August
2014; Dan Bindman, ‘Neuberger Backs Single Regulator but Criticises LSB for
Adding Cost and Confusion’ (Legal Futures, 25 June 2014)
accessed 14 August 2014.
42 David Edmonds, ‘Quality and Standards in a Liberalised Market’ (Legal
Services Board, 10 May 2012)
accessed 14 July
2014; Elizabeth Davies, ‘Unreflective Consumer Fundamentalism: Who are the
103
http://www.gresham.ac.uk/lectures-and-events/regulating-the-regulators
http://www.gresham.ac.uk/lectures-and-events/regulating-the-regulators
http://www.supremecourt.uk/docs/speech-140620.pdf
http://www.legalfutures.co.uk/latest-news/neuberger-backs-single-regulator-criticises-lsb-adding-cost-confusion
http://www.legalfutures.co.uk/latest-news/neuberger-backs-single-regulator-criticises-lsb-adding-cost-confusion
http://www.legalservicesboard.org.uk/news_publications/speeches_presentations/2012/20120510-david-edmonds-russell_cooke_speech.pdf
http://www.legalservicesboard.org.uk/news_publications/speeches_presentations/2012/20120510-david-edmonds-russell_cooke_speech.pdf
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
out – preoccupation with the consumer interest, to a point of regulatory
capture, is an emerging reality. In addressing this claim it is important to
set out firstly, the ingredients for a claim of consumer capture and
secondly, the problems associated with the consumer interest which
indicate that regulating primarily in this interest is neither pragmatic,
appropriate, nor, necessarily in the public’s interest.
Regulatory Capture
There were a number of early models and case studies developing the
theory of regulatory capture and the general understanding of the
attendant dangers.44 Beyond these early works there has been relatively
little follow up in recent decades.45 In a traditional sense, critics maintain
that regulatory capture stunts competition and innovation, as firms are
able to capture their regulators effectively wielding the regulatory power
of the state and can use it as a weapon to block the entry or success of
other firms.46 Capture has thus been alleged – perhaps quite plausibly – to
figure significantly in the major human and environmental crises of our
Unreflective Consumer Fundamentalists? (Legal Services Consumer Panel, 28
February 2013)
accessed 14 August 2014.
43 Elizabeth Davies, ‘What is the Consumer Interest?: Using the Consumer
Principles (Legal Services Consumer Panel, 20 November 2013)
accessed 14 August 2014.
44 George Stigler, ‘The Theory of Economic Regulation’ (1971) 2 Bell Journal of
Economics and Management Science 3. For a general account see: Robert
Baldwin and Martin Cave, Understanding Regulation (Oxford 1999); Richard
Posner, ‘Theories of Economic Regulation’ (1974) 5 The Bell Journal of
Economics and Management Science 335; Kip Viscusi, John Vernon and Joseph
Harrington, Economics of Regulation and Antitrust (2nd edn, MIT 1995); Peter
Aranson, ‘Theories of Economic Regulation: From Clarity to Confusion’ (1990)
6 Journal of Law and Politics 247; Micheal Hankte-Domas, ‘The Public Interest
Theory of Regulation: Non-Existence or Misinterpretation?’ (2003) 15 European
Journal of Law and Economics 165, 185; Hans Maks and Niels Phillipsen, ‘An
Economic Analysis of the Regulation of Professions’ in Lode Vereeck Regulation
of Architects (Intersentia, 2002); Cass R Sunstein, After the Rights Revolution:
Reconceiving the Regulatory State (University of Chicago Press 1990).
45 Carpenter (n 37) 13.
46 Ibid 1.
104
http://www.legalservicesconsumerpanel.org.uk/how_can_we_help/blog/blog_entry_chair_march_2013.html
http://www.legalservicesconsumerpanel.org.uk/how_can_we_help/blog/blog_entry_chair_march_2013.html
http://www.legalservicesconsumerpanel.org.uk/how_can_we_help/blog/blog_entry_chair_006_2013.html
http://www.legalservicesconsumerpanel.org.uk/how_can_we_help/blog/blog_entry_chair_006_2013.html
THE DENNING LAW JOURNAL
time.47 Capture has also been blamed for severely under-cutting efforts at
reform.48 Plugging some of the gaps in the scholarship is now an edited
collection by Carpenter and Moss published in 2014.49 The text, which
will surely become seminal, brings together a set of authors from a range
of disciplines who attempt to gain a clearer grasp of what regulatory
capture is, where and to what extent it occurs, what prevents it from
occurring more fully and pervasively, and, finally, it attempts to distil
lessons for policy makers and the public for how capture can be mitigated
and the public interest protected.50 For present purposes, the text suggests
a useful working definition of regulatory capture and the key ingredients
against which a claim of capture should be judged.
“Regulatory capture is the result or process by which regulation, in
law or application, is consistently or repeatedly directed away
from the public interest and toward the interests of the regulated
industry, by the intent and action of the industry itself.” 51
Previous definitions and theoretical treatments of capture theory have
focused on the regulated industry capturing the regulator for its own
benefits. In the context of legal services this would be the legal profession
capturing regulation for its own self-interest. These theories afford little
room for the consideration of other interests capturing regulation. In a
departure from existing theories, Carpenter52 notes that in principle, the
word “industry” in their definition could be replaced with the word
“interest” or “special interest.” They advance this idea on the basis that
they believe other actors have the potential to twist regulation to serve
their own interests at the expense of the broader public interest.53 It is on
the basis of this theoretical acknowledgement that this paper proceeds to
argue that consumerism and the “consumer interest” in the hands of the
LSB, LSCP and consumer lobby may be orientating regulation away from
the public interest as a result of capture.
The foregoing definition of capture can be broken down into three
distinct elements. Firstly, public interest; secondly, intent and thirdly,
regulated industry. Carpenter and others also set out quite clearly the
47 Ibid 2.
48 Ibid 2.
49 Ibid.
50 Ibid 2.
51 Ibid 13.
52 Ibid 14.
53 Ibid 14.
105
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
evidential burden required to establish a claim of capture. The Public
Interest element is perhaps the most difficult element to qualify or
quantify. Carpenter notes, as do a whole plethora of lawyers, political
scientists and philosophers that both understanding and measuring the
public interest is a “thorny problem as old as democracy”.54 The author of
this paper has also conducted significant research on this very problem in
the context of legal services,55 noting that the LSB’s own understanding
of the public interest is problematical and lacking in many regards.56
The second element of Carpenter’s definition requires intent.
Carpenter argues that the fact that an industry or special interest is well
served by regulation is deeply insufficient for a judgment of capture. Both
intent and action on the part of the regulated industry or special interest
are required. Unless the industry or special interest actively and
knowingly pushes regulation away from the public interest, there can be
no capture. Carpenter suggests the fact that an industry or special interest
benefits from regulation, is, by itself, insufficient, because it could be
alternatively explained by bureaucratic drift, coincidence, or mistakes, or
a simple by product of public serving regulation.57
The third element of Carpenter’s definition is consistent with many
earlier theories of capture in which industry captures regulation for its
own benefit. The industry or special interest needs therefore to derive
some benefit from the regulation. Carpenter suggests that their definition
of capture provides a set of standards for making statements about
whether capture has occurred in the case of a given regulation or agency.
He argues that three general empirical standards straightforwardly flow
from their definition. To claim capture, they suggest an argument ought to
provide a defeasible model of the public interest; show a policy shift away
from the public interest and towards industry (special interest), and, show
action and intent by the industry (special interest) in pursuit of this policy
shift sufficiently effective to have plausibly caused an appreciable part of
the shift.58
The extent of Carpenter and other’s contribution to the literature is
robust and there is much fruitful research to be conducted on a host of
aspects of capture. Of particular note are the various ways in which,
relatively subtly, scholars now suggest capture might come about. This is
54 Ibid 13.
55 Tim Sinnamon, ‘The Public Interest and the Legal Services Act 2007’ (PhD
thesis, University of Surrey 2013).
56 Ibid 172.
57 Carpenter (n 37) 16-18.
58 Ibid.
106
THE DENNING LAW JOURNAL
beyond the commonly understood methods of capture whereby political
campaigns are funded by industry to exert influence, or, pressure is
brought to bear on politicians, or the much discussed ‘revolving door’
method.59 In the context of legal services these more subtle forms of
understanding how capture might occur are useful, as adducing evidence
to substantiate a claim of capture in the traditional sense might prove
difficult. Moving beyond the aforementioned crude incentives which
might appeal to regulator’s personal self-interest, James Kwak,60 Nolan
McCarty61 and Luigi Zingales62 each explore new mechanisms of
understanding capture.
James Kwak investigates the idea of cultural capture. He has explored
new ways by which regulators are influenced, even unknowingly, by
interests through a combination of social, cultural and intellectual
currents.63 Moving beyond other forms of capture – Kwak argues that
“People’s actions are the product of many different factors, and mixes of
motivations are certainly possible.”64 He argues that there is evidence to
suggest that regulators act according to their ideological beliefs.65 This, he
suggests, only raises the question of how those beliefs are formed and
specifically how the administrative process exposes regulators in such a
way that it can colour their beliefs. Both the capture model and the public
interest model of regulatory action assume that regulators are rational
actors: either they maximise their material self-interest or they maximise
their consciously held policy interests.66 However, there is another
possibility: that regulators are susceptible to non- rational forms of
influence, which interest groups can exploit to achieve the practical
equivalent of capture-favourable policy outcomes. Kwak describes three
mechanisms by which a regulated industry, or special interest, is able to
59 Ibid 18.
60 James Kwak, ‘Cultural Capture and the Financial Crisis’ in Daniel Carpenter
and David A Moss (eds), Preventing Regulatory Capture, Special Interest
Influence and How to Limit it (n 63).
61 Nolan McCarty, ‘Complexity, Capacity, and Capture’ in Daniel Carpenter and
David A Moss (eds), Preventing Regulatory Capture, Special Interest Influence
and How to Limit it (Cambridge 2014).
62 Luigi Zingales, ‘Preventing Economists’ Capture’ in Daniel Carpenter and
David A Moss (eds), Preventing Regulatory Capture, Special Interest Influence
and How to Limit it (Cambridge 2014).
63 Kwak (n 60).
64 Ibid.
65 Ibid.
66 Ibid 71.
107
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
shape regulators’ beliefs and actions – mechanisms that should not work if
regulators are rational beings not devoted to their self-interest or if they
form their policy preferences rationally. They are:
Identity: Regulators are more likely to adopt positions advanced
by people whom they perceive as being in their in-group.
Status: Regulators are more likely to adopt positions advanced by
people whom they perceive to be of a higher status in social,
economic, intellectual, or other terms.
Relationships: Regulators are more likely to adopt positions
advanced by people who are in their social networks.67
The composition, background, experience, political affiliation of the
many new actors involved in legal services regulation merits scrutiny and
could form the basis of a study in and of itself. For present purposes, it is
noteworthy that there is a flow of staff members between regulatory
organisations in the city and in particular senior members from the former
regulator Oftel to the LSB. There is also a flow to and from the LSB,
Ofcom, the FCA, the Competition Authorities and others QUANGOS.68
From this it is plausible to suggest that there is an inter-exchange of ideas
and methods of regulating – creating something of an “in group” and a
broad based professional / social network. Existing studies have already
identified this point in other sectors.69 It has also been identified that some
67 Ibid 71.
68 As an example of this - David Edmonds (former Chair of the LSB), Chris
Kenny Chief Executive of the LSB both previously worked at Oftel and David
Edmonds remained for a while with Ofcom. Alex Roy, Research Director of the
LSB has recently left to join the Financial Conduct Authority. Crispin Passmore,
former LSB strategy Director is now the Executive Director of the Solicitors
Regulation Authority.
69 Peter Lunt and Sonia Livingstone, ‘Regulation in the Public Interest’ (2007) 17
Consumer Policy Review 4; Sonia Livingstone, Peter Lunt and Laura Miller,
‘Citizens and Consumers: Discursive Debates During and After the
Communications Act 2003’ (University of Kent, October 2006)
accessed 22 July 2014; Sonia Livingstone, Peter Lunt and Laura Miller, ‘Citizens,
Consumers and the Citizen – Consumer: Articulating the Interests at Stake in
Media and Communications Regulation’ (2007) 1 Discourse and Communication
85, 97; Sonia Livingstone, ‘What is the Citizen’s Interest in Communication
Regulation?: Ofcom’s Agenda for “Citizens, Communications and
Convergence”’ (Conference Paper, LSE Research Online, 30 October 2008) 2
108
http://www.kent.ac.uk/scarr/papers/Livingstone%20Wk%20Paper10.(2).pdf
THE DENNING LAW JOURNAL
of the “new regulators”70 regulate in a similar way, using nearly identical
“tools.” These regulatory tools have also failed to get to grips with
concepts analogous to the citizen or public interest.71
A casual review of the composition of the boards of the LSB, LSCP
and SRA now reveals a membership of, on the whole, career board
members often with past affiliations or current memberships of consumer
organisations or competition promoting organisations.72 There is a loose
similarity in the credentials, including academic and professional
backgrounds, of many members of the various Boards which oversee the
regulatory functions of the larger approved regulators. This again hints at
many of the precepts of cultural capture outlined above. The similarity of
the recent composition of the LSCP is something that has not escaped the
attention of Baroness Ruth Deech who in a House of Lords Debate on
referral fees noted:
“There is a perception that the Legal Services Board Consumer
Panel may fail the test of impartiality and expert evidence. After a
freedom of information request, it was revealed that the panel has
an unbalanced political composition. Half of its members are
declared members of the Labour Party and/or members of unions-
the unions being, of course, supporters of the Labour Party. Why
does this matter? Because there is a conflict between the duty to
represent the consumer and certain vested interests that are not
always transparently declared in, for example, the Consumer Panel
report on referral fees, which was adopted by the parent body, the
Legal Services Board. The Labour Party itself is in receipt of
referral fees. Lord Justice Jackson, in his Review of Civil
Litigation Costs earlier this year, said that they should be banned
in personal injury cases. So did the noble Lord, Lord Young of
(This work does not frame these observations in the context of capture or cultural
capture).
70 ‘New regulators’ is a term used commonly to describe a new breed of
regulators brought about during the period of the Blair government. They were
primarily concerned with economic regulation. They are variously lighter touch,
public facing, risk centred, created by statute and funded by a levy on the industry
they regulate and are usually accountable to parliament. See: Livingstone (n 69).
71 Lunt (n 69).
72 John Kay, ‘How to Spot a Good From a Bad Quango’ (Financial Times, 12
October 2010) accessed 25 October 2014; notably Kay
referred to a modern class of ‘quangocrats’ who glide effortlessly from committee
to committee.
109
http://www.ft.com/cms/s/0/cc7ff2e4-d651-11df-81f0-00144feabdc0.html%23axzz36FPyHHM4
http://www.ft.com/cms/s/0/cc7ff2e4-d651-11df-81f0-00144feabdc0.html%23axzz36FPyHHM4
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
Graffham, in his report on the claims culture. The Law Society has
set its face against the practice. Therefore, it is odd that the LSB
Consumer Panel has come out in favour of the retention of referral
fees, whereby solicitors and others may buy in work by, for
example, paying unions to refer business to them. Given that half
of the Consumer Panel is made up of members of the Labour
Party, the perception may be there-it is possible to make the
criticism-that it could be influenced by the unwillingness of the
party to give up a potential source of income from the firm of
solicitors that acts on its behalf in personal injury cases.”73
Returning to other ways in which capture may manifest itself,
McCarty74 argues that the “provision of expertise by interest” – in which,
as a result of heightened complexity, regulators come to rely on industry
or interest groups expertise in ways that tilt decision making toward these
particular interests. The very fact, as discussed later on in this paper that
the LSB is duty bound to interact with the LSCP75 is a significant factor in
any argument that a tilt has occurred in favour of the consumer interest.
Moreover, the fact that the LSCP appears to repeatedly use certain
research organisations, as does the LSB, shows a predisposition to
particular ways of thinking.
Zingales76 argues, that perhaps the most subtle of all methods of
capture occurs by “economists capture” - in which industry or interest
groups influences and incentivises scholars to favour a particular
perspective in their work, thereby indirectly influencing regulators who
rely on the scholars’ judgment and expertise in making decisions. The
next section identifies the fact that the LSB and others have been explicit
in their commitment to market failure analysis and cost benefit analysis,
commonly following the Treasury’s Green Book methodology.77 These
economic methodologies for decision making are also clearly to be found
used in much of the research appropriated by the LSB despite market
failure analysis coupled with cost benefit being roundly criticised.78 The
73 Baroness Ruth Deech, HL Deb 9 November 2010, vol 722 col 170.
74 McCarty (n 61).
75 LSA 2007, ss 8-11.
76 Zingales (n 60).
77 HM Treasury, The Green Book Appraisal and Evaluation in Central
Government (HMSO 2003).
78 Christopher Decker and George Yarrow, Understanding the Economic
Rationale for Legal Services Regulation (Legal Services Board, 2010) 12.
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following interrogates the concept of the consumer interest and discusses
the way in which it has become the focus of economic methodologies.
3. THE CONSUMER INTEREST
The LSA 2007 in part helps in the search for an understanding of the
consumer. Of all the terms that appear in the regulatory objectives, the
only one that is further defined in the Act is “consumer”. S 207(1) defines
consumers as follows:
Legal Services Act 2007, s 207(1)79 “consumers” means persons
a) who use, have used or are, or may be contemplating using,
services within (subsection 2)80
b) who have rights or interests which are derived from, or are
otherwise attributable to, the use of such services by other
persons, or
c) who have rights or interests which may be adversely
affected by the use of such services by persons acting on
their behalf or in a fiduciary capacity in relation to them
This definition is broadly constructed, however, adding “interest”81 to
it, to make “consumer interest,” presents more of a definitional challenge.
Prominent scholars in the world of consumer affairs have concluded that
the term consumer interest “resists a single definition” and is “highly
politicised”.82 This is an experience borne out by many established
regulators, who have made concerted efforts to understand what the
79 LSA 2007, s 207(1).
80 Ibid s 2(a): ‘any services provided by a person who is an authorised person in
relation to an activity which is a reserved legal activity, and, (b) any other
services provided by a person which consist of or include a legal activity carried
on by, or on behalf of, that person.’
81 For the purposes of this paper, the term interest is not taken to be a sense of
feeling or curiosity. Rather it relates to something being done, or enacted, or
brought about, or maintained. It is a separate question from that of whether an
individual must be aware of his interest. This approach broadly is an articulation
of that commonly adopted in the literature pertaining to public interest
scholarship. Virginia Held, The Public Interest and Individual Interests (Basic
Books 1970) 18.
82 Stephen Broebeck, ‘Defining the Consumer Interest: Challenges for
Advocates’ (2006) 40 Journal of Consumer Affairs 177, 178.
111
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
consumer interest is.83 Complex toolkits have been developed in the
pursuit of diagnosing the consumer interest.84 Broebeck, has, however,
noted that the consumer interest can be most usefully thought of in terms
of “competition, representation, information and redress.”85 The Labour
Government shed some light on its understanding of the consumer interest
in the heated debates between itself and the House of Lords over proposed
legislation, which later became the Communications Act 2003.86 To
clarify the difference between the consumer and the citizen, borne out of a
series of challenges to the language used in the Communications Bill
presented to Parliament, the Government provided an explanatory
memorandum.87 It noted that the consumer interest can be defined as the
interest of a purchaser or other user of a good or service, normally based
on an economic relationship between the individual and the supplier of the
good or service in question.88 In comparison, the citizen interest may be
defined as the interest of the individual in his or her capacity as a member
of society and the public interest as the interest or good of society as a
whole.89 In connection with the consumer interest, this has led scholars to
note: “in a general sense one can define consumer interests in the market
as related to four market characteristics of price, service, quality and
choice.”90
83 Ofcom, ‘Capturing the Consumer Interest: A Report of the Launch of the
Toolkit for Regulators and Government’ (Ofcom, 2 February 2006)
accessed 22 July 2014.
84 LSCP, ‘The Consumer Interest – Using Consumer Principles Consumer
Toolkit’ (LSCP, January 2014)
accessed 18 August 2014.
85 Broebeck (n 82).
86 Communications Act 2003.
87 DTI/DCMS, ‘Note by the Department of Trade and Industry and the
Department for Culture. Media and Sport on the Meaning of “Customer”,
“Consumer” and “Citizen”’ (Parliament, June 2002) accessed 22
July 2014.
88 Ibid.
89 Ibid.
90 Eugène Buttigietg, Competition Law: Safeguarding the Consumer Interest - A
Comparative Analysis of US Antitrust Law and EC Competition Law (Wolters
Kluwer 2009) 1.
112
http://www.communicationsconsumerpanel.org.uk/downloads/Policy/Consumer%20InterestToolkit/Events/Capturing%20the%20Consumer%20Interest%20A%20report%20of%20the%20Launch%20etc.pdf
http://www.communicationsconsumerpanel.org.uk/downloads/Policy/Consumer%20InterestToolkit/Events/Capturing%20the%20Consumer%20Interest%20A%20report%20of%20the%20Launch%20etc.pdf
http://www.communicationsconsumerpanel.org.uk/downloads/Policy/Consumer%20InterestToolkit/Events/Capturing%20the%20Consumer%20Interest%20A%20report%20of%20the%20Launch%20etc.pdf
http://www.parliament.the-stationery-office.co.uk/pa/jt200102/jtselect/jtcom/169/2070808.htm
http://www.parliament.the-stationery-office.co.uk/pa/jt200102/jtselect/jtcom/169/2070808.htm
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This characterisation of the consumer, therefore, moves beyond a
more general understanding of the consumer interest in terms of consumer
rights and consumer protection. It reflects a more enhanced understanding
of the consumer, as an individual with preferences and as a prime feature
of the market. The Government’s focus on the consumer in the Legal
Services Bill followed the trend embodied in its other public sector
reforms. This leads therefore to an argument and hypothesis that
“protecting and promoting the consumer interest” was concerned with
ensuring the market mechanism worked effectively.91
The market perspective of the consumer interest is arguably of critical
importance, as in a number of situations the market may not be
compatible with other socially desirable outcomes.92 Market failure is
commonly used as the intellectual premise upon which many regulators
approach regulation.93 It therefore provides a valuable lens with which to
further view the consumer interest. The use of market failure is clearly
apparent among many of the regulators created since 1997. The FSA94
and the LSB95 explicitly note that they use this approach in the process of
decision making regarding policy and regulation. There is evidence that
91 There is clear evidence of this assertion in the following speeches by senior
members of the Legal Services Board. Chris Kenny, ‘Alternative Business
Structures and the Legal Services Market – Impact one Year on and Future
Challenges’ (Speech at the Westminster Legal Policy Forum, 18 October 2012);
David Edmonds, ‘Quality and Standards in a Liberalised Market’ (Address by the
Chairman of the Legal Services Board, Russell Cooke Forum, 10 May 2012).
92 For an outline account see Stephen Mayson, Legal Services Regulation and
“The Public Interest” (Legal Services Institute 2011); for a more developed
account: Mike Feintuck, The Public Interest in Regulation (OUP 2004); Barry
Bozeman, Public Values and Public Interest (Georgetown University Press
2007); Deborah Satz, Why Some Things Should Not be for Sale: The Moral Limits
of Markets (OUP 2010).
93 Harry McVea ‘Financial Services Regulation under The Financial Services
Authority: A Reassertion of the Market Failure Thesis’ (2005) 64 CLJ 413.
94 ‘Effective Inspection and Enforcement: Implementing the Hampton Vision in
the Financial Services Authority’ (National Audit Office, 2008)
accessed 22 July 2014; McVea (n 93).
95 Alex Roy, ‘Understanding the Economic Rationale for Legal Services
Regulation’ (Legal Services Board, 2011)
accessed 22 July 2014.
113
http://www.nao.org.uk/publications/0708/hampton_financial_services_au.aspx
http://www.legalservicesboard.org.uk/news_publications/latest_news/pdf/economics_of_legal_services_regulation_discussion_papers_publication_final.pdf
http://www.legalservicesboard.org.uk/news_publications/latest_news/pdf/economics_of_legal_services_regulation_discussion_papers_publication_final.pdf
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
other regulators, including Ofcom96 commonly use this method, though
they do not appear to have explicitly stated so, in the same way as the
FSA and the LSB.97 The Government’s Green Book98 also mandates
market failure analysis and cost benefit analysis as the principal rationale
for government intervention regarding the operation of markets and
institutions.99 The following outlines the theory, and then considers it as a
tool for policy and decision making.
The market failure theory is a consumer orientated theory of
regulation,100 rooted in the idea that market forces are the best means of
ensuring that consumers’ needs are met. Underlying the theory is the
assumption that consumer preferences are more likely to be satisfied when
firms engage in fierce and constant competition with each other. In the
situation of a perfect market,101 the market is said to generate benefits for
consumers in terms of price, innovation, quality, and variety of service
(choice). These outcomes are only true under conditions of perfect
competition.102 Given that markets are seldom perfect and suffer from a
variety of deficiencies, regulation is justified when it aims to eliminate
market failures and so restore a competitive equilibrium. The justifications
for regulation under the market failure thesis are limited to instances of
information asymmetries; externalities; anti-competitive practices and
public goods.103 The economic justification for the market failure
approach is that through market based transactions enshrined in the idea
of mutually beneficial, voluntary exchanges – consumer preferences are
best satisfied and scarce resources are shifted to where they are most
valued on the basis of willingness to pay otherwise known as “allocative
96 For an overall account of the market failure approach taken by Ofcom see:
Tony Prosser, ‘Regulation and Social Solidarity’ (2006) 33 Journal of Law and
Society 364, 367 -369
97 Roy (n 95).
98 HM Treasury (n 77).
99 Ibid.
100 McVea (n 93).
101 Ibid.
102 Perfect competition presupposes: clearly defined property rights, non- natural
monopolies; no barriers to entry; no transaction costs.
103 Frank Stephen, ‘The Market Failure Justification for the Regulation of
Professional Services Markets and the Characteristics of Consumers’ in Claus
Dieter Ehlerman and Isabela Atanasiu (eds), European Competition Law Annual
2004: The Relationship Between Competition Law and (Liberal) Professions
(Hart Publishing 2004).
114
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efficiency.”104 Market failure establishes, however, only a prima facie
case for regulation, and in some instances the costs of regulation may
outweigh any benefits. Market failure analysis is therefore often
accompanied by a cost-benefit analysis.105 The consumer interest is,
through this approach, essentially a by-product of the process of the
market operating properly. The market, free of regulation, yields benefits
in the consumer’s interest in terms of lower prices, more innovative
services, better choice of services and better quality. However, within
what is a relatively simple hypothesis, the consumer is construed
narrowly. The following outlines some broad problems associated with
the approach.
The market failure theory is, by definition, rooted in the theory of
private value and is driven by a concern for pricing efficiency.106 The
narrowness of the approach has led to a number of studies which have
shown that market failure negates broader public values, beyond the
economic, and especially outcomes where the technical efficiency of
prices is not a primary consideration.107 Bozeman108 notes that the
pervasiveness of market failure reasoning ensures a built in conservatism
in public policy which often results in the neglect of public values. This is
because the model marginalises many collective values by simply not
dealing with them. This raises an important point. The market, by
definition, is concerned with individual values; it is not concerned with
collective values which may be important to the whole of society. This is
significant in matters to do with the law, the environment and culture. In
regards to law, concepts such as the rule of law, access and administration
of justice, honesty and dignity, duties to the court, reputation,
sustainability, independence and ethics are not easily translated into
values that can be expressed in monetary terms. The market failure model
and the consumer are therefore just concerned with the market. It is not
104 Ibid.
105 HM Treasury (n 77) 52; McVea (n 93) 413.
106 Barry Bozeman, Public Values and Public Interest (Georgetown University
Press 2007) 5.
107 Richard Zerbe and Howard McCurdy ‘The Failure of Market Failure’ (1999)
18 Journal of Policy Analysis and Management 558 - The comprehensive critique
analyses Lighthouses, Land Tenancy, Bees and Crops, Common Property,
concluding that in each of these cases the theoretical proposition put forward by
Market Failure when tested empirically was incorrect. The authors suggest that
the correct normative theory rests on transaction costs, which is inherently based
on significant empirical enquiry.
108 Bozeman (n 106) 20.
115
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
concerned with other factors which may be of importance. Market failure,
is, as Sagoff argues, a perfectly appropriate measure of the consumer’s
interest.109 Interests can accurately be assessed in terms of price, which
reveals what individuals are willing to pay to obtain what they want.110 He
posits that the model deals with the efficiency of markets and how one
knows that markets are not efficient. It is not, he asserts, about people and
social institutions.111
Despite these problems, market failure is widely used by policy
makers and regulators. Decker and Yarrow have commented on the
unreflective use of market failure analysis and concluded that analysts
tend to jump straight from a finding of “market failure” to a conclusion
that intervention is not just potentially warranted, rather, they omit further
investigation and assert that intervention is actually warranted.112 Beyond
this, there are a number of more subtle problems with the way in which
the model constructs the preferences the market seeks to promote. The
following sets these out.
The traditional view of the free market is a presumption that what
justifies regulation is market failure, or more specifically, the failure of
the market by itself to achieve efficiency.113 The purpose of regulation
under this model is to restore the market to its natural condition, or as
close an approximation of that condition as can be hoped for.114 Efficiency
in this context has been explained by Posner as follows: “Efficiency is a
technical term: it means exploiting economic resources in such a way that
human satisfaction as measured by aggregate consumer willingness to pay
for goods and services is maximised.”115 Whilst, as noted, this approach is
good at understanding the consumer’s interest, a number of scholars have
queried whether the consumer interest is worth satisfying. Notably, Sagoff
has argued: “an efficiency criterion assumes that the goals of our society
are contained in the preferences individuals reveal or would reveal in
109 Mark Sagoff, ‘Economic Theory and Environmental Law’ (1981) 79
Michigan Law Review 1393.
110 Ibid.
111 Peter Brown, ‘The Failure of Market Failures’ (1992) 21 Journal of Socio
Economics 1, 1-24; Brown argues that it is premised on shallow utilitarianism
and as such is a prisoner to its foundations in economic individualism.
112 Decker (n 78) 12.
113 Edward Rubin, ‘Deregulation, Reregulation, and the Myth of the Market’
(1988) 45 Washington and Lee Law Review 1249, 1258.
114 Ibid.
115 Posner (n 44).
116
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markets.”116 These individual preferences are not fixed,117 are
subjective118 and reflect a number of cultural and maybe societal
conditions.119 Further to this, these individual preferences are capable of
changing. Were they not, there would be no place in the world for
advertising, salespeople and consumer psychologists. The theory works on
the premise that autonomously created, materially defined self-interests do
exist, and it is the collective expression of these interests through market
purchases which leads to optimal resource allocation.120 A critical
argument flows from this that a preference satisfying policy will only be
as good as the preferences as understood, and there is nothing that
guarantees that the preferences will be the right ones, or ones worth
having.121 Many examples abound to explain this point. Sagoff, frames the
key issue as follows:
“As consumers, indeed, we buy the least expensive goods, and in
that way reveal a preference for lower worker safety standards,
since they bring lower prices with them. Yet as citizens we may
regard ourselves as Americans together and therefore responsible
for the decency of workplace conditions. Likewise many of us
who never visit a magnificent landscape may believe nevertheless
that society has a duty to preserve it. Concerns such as these
impersonal values rather than consumer preferences may become
more important to us than our personal or economic interest.”122
In the context of legal services, Stempel makes a similar point but
builds on it by noting the importance of considering collective values in
addition to individual consumer values in the context of the law.
116 Mark Sagoff, ‘At the shrine of Our Lady of Fatima or Why Political Questions
are Not All Economic’ (1981) 23 ACJ 1283.
117 Jane Barron and Jeffrey Dunoff ‘Against Market Rationality: Moral Critiques
of Economic Analysis in Legal Theory’ (1996) 17 Cardozo LR 431; Mark Sagoff
‘On Preserving the Natural Environment (1974) 84 Yale LJ 205, 207.
118 Stephen Broebeck, ‘Defining the Consumer Interest: Challenges for
Advocates’ (2006) 40 Journal of Consumer Affairs 177, 178.
119 Rubin (n 113) 1267.
120 McVea (n 93) 441.
121 Mark Sagoff, ‘The Principles of Federal Pollution Control’ (1986) 71 Minn L
Rev 19, 58.
122 Mark Sagoff, ‘Values and Preferences’ (1986) 96 Ethics 301, 311.
117
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
“As a consumer, I am a participant in markets. My aim is to
enhance my own well-being, by satisfying my preferences, which
I express through market behaviour. As a citizen, my concern is
different. It is a concern not with what is best for me but with what
is right for us. My aim is to participate in deliberation with my
fellows, and I consider not only my preferences but my (and our)
values as well. Frequently, my consumer preferences coincide
with the values I support as a citizen; sometimes, however, they do
not. Because our aims as consumers and citizens are somewhat
schizophrenic, public and private life both require a never-ending
negotiation between consumer values and citizen values.” 123
The focus on consumer preferences alone is not desirable. McVea124
argues that consumer preferences “tells us nothing about, indeed, it seems
unconcerned with whether –those preferences are worth having.”125 This
is not an isolated assertion. Sagoff suggests that it cannot be argued that
the satisfaction of preferences is a good thing in itself for many
preferences are sadistic, envious, racist or unjust.126 Furthermore, in the
context of preferences, McVea has noted that markets also pander to
particular types of preferences (more is better than enough) and tend to
systematically favour the lowest common-denominator amongst the
spectrum of consumer preferences.127 What emerges from the foregoing is
that one of the main methods of regulators decision making is largely
predicated on both a narrow conception of the consumer interest, and
secondly, is compromised in considering collective interests that may
affect society as a whole. The market model is concerned with the market.
There is little in the model which can discern when the consumer interest
is compatible with the public interest, or when it is not. The market model
pursues the market vision, irrespective of whether this is in the collective
public interest or not. This raises a number of questions as to whether this
is an appropriate method of approaching the regulation of legal services.
123 Jeffrey Stempel, ‘Embracing Descent: The Bankruptcy of a Business
Paradigm for Conceptualising and Regulating the Legal Profession’ (1999) 27
Florida State University Law Review 120.
124 McVea (n 93).
125 Jane Barron and Jeffrey Dunoff, ‘Against Market Rationality: Moral Critiques
of Economic Analysis in Legal Theory’ (1996) 17 Cardozo LR 431; Sagoff (n
117); McVea (n 93); Sagoff (n 122)
126 Sagoff (n 121).
127 McVea (n 93).
118
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4. STRUCTURAL POSITIONING OF THE CONSUMER
INTEREST
Understanding the problems with the consumer interest and the way in
which it is commonly located within decision making processes is
important in any overall determination of consumer capture, as it locates
the objection towards regulators regulating in its interest without
thoughtful consideration of the public interest. This section considers
some factors which, in part, may explain the emphasis accorded to the
consumer interest by the LSB. The following outlines the socio-political
and economic influences which led to the emphasis afforded to the
consumer interest in the LSA 2007. The following argues that the LSA
2007 is both stylistically and substantively a piece of economic regulation
– drafted in a style that presents a number of interesting and, as yet,
unresolved questions. It argues that the method of regulation,
characteristic of the early years of the millennium, spawning a number of
QUANGO regulators, has, through a form of “Group Sync” and New
Public Management128 influences, come to regulate in the consumer
interest because it is amenable to relatively simplistic quantification and
apparently transparent regulation. Whilst the Legal Services Bill was
drafted with a strong economic and consumer emphasis, absent any
reference to the public interest – this paper reiterates the fact that the
overriding purpose of regulation is to further the public interest. Whilst
this is a simple matter of understanding for most, the explanatory notes to
the LSA 2007 are Delphic and vague. Without promoting a clear
hierarchy of regulatory objectives with the public interest at the top, it is
perhaps understandable, but unforgivable, that regulators have sought to
prioritise the consumer interest. The following section also draws
attention to the statutory creation of the LSCP and its very close
relationship with the LSB. This section challenges this narrowly
constructed formalised champion of the consumer interest within the LSB
whilst noting that no other interest group is accorded such a privilege. The
final argument made is that there is a long-standing recognition that
charging a regulator with being a champion of both the consumer interest
and the public interest is a problematical combination which might come
to have serious consequences.
128 ‘New Public Management’. This prioritises the efficiency of public sector
administration rather than an orientation towards broader values which many
regard as important. Consequently, a burgeoning area of study is to be found
attempting to reconnect public services and management to public values;
Bozeman (n 106).
119
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
There has been a long pedigree of claims, extending over 40 years,
that the legal profession and legal services market should be liberalised.129
Many accounts set out the background to these claims.130 It was only in
and around the early years of the Millennium that a number of catalysts
coalesced to provide the requisite political will and potential for achieving
a successful outcome for a piece of far reaching legislation reforming
legal services. The Labour Government’s appetite for reforming the legal
professions was perhaps most advantaged, politically, by a highly
publicised problem with the handling of complaints made against
Solicitors.131 This problem fuelled a co-ordinated and sustained campaign
129 MMC, A Report on the General Effect on the Public Interest of Certain
Restrictive Practices (HMSO 1970); OECD, Competition in Professional
Services (DAFFE/CLP 2000); Royal Commission on Legal Services, The Royal
Commission on Legal Services in England and Wales: Final Report (HMSO
1979); Robin White, A Guide to the Courts and Legal Services Act, 1990
(Fourmat Publishing 1991); Richard Abel, English Lawyers Between Market and
State (OUP 2004); Great Britain, The Work and Organisation of the Legal
Profession (Stationary Office Books 1989); Great Britain, Conveyancing by
Authorised Practitioners (Stationery Office Books 1989); Great Britain,
Contingency Fees (HMSO 1989); Michael Zander, ‘The Thatcher Government’s
Onslaught on the Lawyers: Who Won?’ (1990) 24 International Law 753, 759;
Laurel S Terry, ‘The European Commission Project Regarding Competition in
Professional Services’ (2009) 29 Northwestern Journal of International Law and
Business1, 1-10; Iain Paterson and others, ‘Economic Impact of Regulation in the
Field of Liberal Professions in Different Member States: Regulation of
Professional Services’ (IHS,2003)
accessed 11 July 2014; DCA, Competition and Regulation in
the Legal Services Marketplace (CP(R2) 2003) 20; Michael Zander, Lawyers and
the Public Interest (Weidenfeld Nicolson 1968).
130 Richard Abel, English Lawyers between Market and State (OUP 2004); Judith
L Maute, ‘Revolutionary Changes to the English Legal Profession or Much Ado
About Nothing?’ (2006) 17 Professional Lawyer 1, 7; Mary Seneviratne,
‘Consumer Complaint and the Legal Profession: Making Self Regulation Work?’
(2000) 7 International Journal of the Legal Profession 39; Mary Seneviratne, The
Legal Profession: Regulation and the Consumer (Sweet and Maxwell 1999) ch 5;
Mark Davies, ‘The Regulatory Crisis in the Solicitors Profession’ (2003) 6 Legal
Ethics 2; Robert Baldwin and others, ‘Regulating Legal Services: Time for the
Big Bang’ (2004) 67 MLR 787.
131 Richard Moorhead, ‘Self-Regulation and the Market for Legal Services’
(Cardiff Working Papers, 2004)
accessed 19 August 2014; Mary Seneviratne, ‘Consumer Complaint and the
120
http://ec.europa.eu/competition/sectors/professional_services/studies/prof_services_ihs_part_1.pdf
http://ec.europa.eu/competition/sectors/professional_services/studies/prof_services_ihs_part_1.pdf
http://www.ccels.cf.ac.uk/archives/publications/2004/moorheadpaper.pdf
THE DENNING LAW JOURNAL
by a number of consumer organisations – who for a long time had been
challenging the perceived monopoly of the legal profession. The OFT’s
interest in reform, buoyed by a number of developments in the EU and at
the OECD also meant that the time was ripe for change.132 What has been
overlooked by many commentators was the fact that the Legal Services
Bill was introduced to Parliament at a time where the Labour Government
was preoccupied with pursuing a neo-liberal, consumer friendly inspired
deregulation agenda.133 The result being that the Legal Services Bill was
drafted along strictly economic lines.134 That is to say it was a piece of
economic regulation in all but name. This in part explains the insertion of
regulatory objectives – which are a drafting feature of regulation, and
primarily economic regulation at that time. In essence, the consumer
lobby and Government were simultaneously pursuing an outcome which
sought to improve the lot of the consumer through market means. To
illustrate this point, the public interest, which had until 2002 appeared as a
term in many of the documents evaluating the legal professions, was given
Legal Profession: Making Self Regulation Work?’ (2000) 7 International Journal
of the Legal Profession 39.
132 OFT, Competition in Professions (OFT 328, 2001); OFT, Competition in
Professions – Progress Statement (OFT 385, 2002)
133 Stephen Broebeck, ‘Defining the Consumer Interest: Challenges for
Advocates’ (2006) 40 Journal of Consumer Affairs 177, 178; Michelle Everson,
‘Legal Construction of the Consumer’ in Frank Trentmann (ed), The Making of
the Consumer: Knowledge, Power and Identity in the Modern World
(BERG 2005); John Clarke, Janet Newman and Louise Westmarland, ‘Creating
Citizen-Consumers? Public Service Reform and (un)Willing Selves’ in Sabine
Maasen and Barbara Sutter (eds), On Willing Selves: Neoliberal Politics and the
Challenge of Neuroscience (Palgrave Macmillan 2007) 125–145; Thomas Frank,
One Market Under God: Extreme Capitalism, Market Populism and the End of
Economic Democracy (Anchor Books 2001) 25; Wendy Larner, ‘Neo-Liberalism:
Policy, Ideology, Governmentality’ (2000) 63 Studies in Political Economy 5.
134 The Select Committee on Regulators, UK Economic Regulators (HL 2006-
2007, 189-I; The Select Committee on Regulators, UK Economic Regulators (HL
2006-2007, 189-II) The report focuses on economic regulators. Whilst the LSA
2007did not necessarily set out to create a specific economic regulator, the Legal
Services Board has clearly acknowledged that it views a rather substantial part of
its statutory remit as creating this responsibility. ‘If we’re not an economic
regulator, why on earth did Parliament write in all the stuff in the Act about
bringing in alternative business structures? What is that, if not breaking down
barriers to entry in a form of economic regulation?’; Legal Futures ‘Edmonds
Comes Out Fighting’ (Legal Futures, 27 April 2012)
accessed 23 July 2014.
121
http://www.legalfutures.co.uk/latest-news/edmonds-comes-out-fighting-in-defence-of-lsb
http://www.legalfutures.co.uk/latest-news/edmonds-comes-out-fighting-in-defence-of-lsb
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
scant consideration after Lord Chancellor Irving left office. The term
public interest did not feature in any of the documents, reports or
consultations in the period 2002- 2007.
As a result of the successful passage of the LSA 2007 this brought
about a number of regulatory innovations which, in one way or another,
can be seen in other pieces of regulation. Similar to the LSA 2007 the
Communications Act 2003 gave birth to a QUANGO oversight regulator.
Studies reveal that there is a degree of similarity of approach in the ways
in which these regulators regulate.135 In particular they hold themselves
out to be evidenced based regulators. However, the approaches taken
towards evidence and transparent regulation have yielded some interesting
results. The Hampton136 requirement for transparent decision making has,
in line with the neo liberal inspired “New Public Management” approach
sought methods by which regulatory decisions can be defended. As
mentioned earlier in this paper – market failure coupled with cost benefit
analysis is these regulators stock in trade. Naturally this means that
consumer interested policies are prioritised because these simplistic
economic tools provide a methodology by which regulators can defend
their decisions. Moreover, it provides a panacea by which ideologies of
the regulators may be aired.137 Studies reveal that other regulators have
been unable, unwilling or incapable of making, or taking, decisions
135 Lunt (n 69).
136 The following five principles were identified by the Better Regulation Task
Force in 1997 – otherwise known as the Hampton Principles. Regulatory
activities should be transparent, accountable, proportionate, consistent and
targeted only at cases in which action is needed. These principles are inserted
specifically in the Act at LSA 2007, pt 2, s 3(a).
137 As an example – See David Edmonds: ‘We have a very simple goal – to
reform and modernise the legal services marketplace in the interests of
consumers, enhancing quality, ensuring value for money and improving access to
justice across England and Wales’; Legal Services Board, ‘Strategic Plan 2012-
15 Business Plan 2012/13’ (LSB, April 2012)
accessed 30 April 2014, 11; David Edmonds: ‘We
want regulators to step back from dictating the services offered and the structures
of businesses operating in the legal services market to allow market forces to play
a greater role. This we believe will help create a legal services market that is the
right size for consumers.’ David Edmonds, ‘Regulatory Standards and assessing
regulatory performance’ (Legal Compliance Bulletin, 2012)
accessed 30
April 2014.
122
http://www.legalservicesboard.org.uk/news_publications/publications/pdf/business_plan_201213_final.pdf
http://www.legalservicesboard.org.uk/news_publications/publications/pdf/business_plan_201213_final.pdf
http://www.legalservicesboard.org.uk/news_publications/speeches_presentations/2012/legal_compliance_bulletin_article_issue_20_july_2012.pdf
http://www.legalservicesboard.org.uk/news_publications/speeches_presentations/2012/legal_compliance_bulletin_article_issue_20_july_2012.pdf
THE DENNING LAW JOURNAL
orientated by the public interest or the citizen interest – for reasons to do
with both the method of regulating and ideological predispositions.138
The draft Legal Services Bill appeared without a regulatory objective
to protect and promote the public interest. This was rectified in the House
of Lords after significant debate. In some regards the debates in the House
of Lords might well have ameliorated some of the effects of capture by
the consumer lobby. The background to the LSA 2007 set its sights
ideologically on promoting the consumer. This was synonymous with the
Labour Government’s policy disposition at the time. Therefore, from the
start, the legislation has been orientated towards the consumer. This
emphasis has, in a way proved rather difficult to rationalise when it comes
to understanding the regulatory objectives. The explanatory notes to the
Act provide that the regulatory objectives are not ranked in terms of any
importance. This is something that the LSB has been keen to point out.
However, for anyone acquainted with regulatory theory – regulation
should promote and protect the public interest. Any argument to the
alternative is wholly misguided. However, as has been noted in this paper,
the public interest is an amorphous concept and apt to be manipulated in a
way which can give rise to outcomes which are not in the public interest.
In a sense, when it comes to the interpretation of the regulatory objectives
– the public interest is easily subordinated or subverted. To understand the
public interest requires much consideration from a regulator with
ideological neutrality. David Edmonds and Chris Kenny of the LSB have
never recanted in their frequent speeches and presentations from
eulogising about the wisdom of free market economics, the capacity of
markets to operate largely free of regulation and finally the benefits of
protecting consumers and consumerism. Therefore, whilst it is clear that
the ideological disposition of the LSB has pursued these ideas – it is in
part, the drafting of the LSA 2007 that might be challenged for not more
robustly framing the public interest as the principle purpose of regulation.
The LSB’s own interpretation of the public interest which equates it
with “public confidence” bears testament to the ease with which the
regulator has been able to decide, largely unchallenged, what the public
interest is.139 As has been rightly identified – even if “public confidence”
138 Lord Currie, Chair of Ofcom, was so incensed that he is on record as saying
that the wording of the Communications Act confused the clear vision of Ofcom
as an economic regulator See: Lord Currie, (English National Forum Seminar
Speech, 7 July 2003) accessed 12 August 2014.
139 Legal Services Board, Business Plan 2010-2011 (LSB, 2010).
accessed 15 August 2012 (this document sets out the
LSB’s interpretation of the regulatory objectives).
140 David Neuberger, ‘Professional Discipline – Challenges for the Future’
(Keynote Speech, Disciplinary Conference, 5 February 2010).
141 LSA 2007, pt 2, s 8.
142 LSA 2007, pt 2, s 9.
143 LSA 2007, pt 2, s 10(1).
144 LSA 2007, pt 2, s 10(2).
145 LSA 2007, pt 2, s 11(2).
124
http://www.legalservicesboard.org.uk/news_publications/publications/pdf/final_annual_plan_2010.pdf
THE DENNING LAW JOURNAL
the policy-making process. However, the Consumer Panel is fully
independent of the Board – we commission and carry out
independent research, advise the LSB on the interests of
consumers, and scrutinise the LSB’s work on behalf of
consumers.”146
The intricate details of how the LSB and LSCP interact and how the
latter is funded are set out in a Memorandum of Understanding signed in
2010. The point to be taken from the mere existence of the LSCP – is that
no other interest group is represented so completely and closely at the
heart of the oversight regulator and legal services regulation. No public
interest panel, rule of law panel or professional lawyering panel exists.
Suggestions were made that there should be a panel to represent the legal
profession during the debates on the Legal Services Bill in the House of
Lords – but this was roundly rejected.147 The extent to which there is a
sharing of information and approach by the LSCP and LSB – in part-
explains some of the arguments posited below. For present purposes,
however, the structure of the legislation and the direct representation of
the consumer at the heart of legal services regulation links to another
point, first raised by Ben Lewis in the 1930’s concerning research
undertaken into the National Recovery Board in America, an initiative
created during the first New Deal project.148 He drew attention to the
following critical point:
“to place any official in the position of having to represent both
the public interest and the consumer interest is to make him both
the judge of all parties and counsel for one of the parties at
interest.”149
146 LSB and LSCP, ‘Memorandum of Understanding Between LSB and LSCP’
(LSB, 14 January 2010)
accessed 10 August 2014.
147 Lord Kingsland HL Deb 15 May 2007 vol 692 pt 86.
148 The 1997 Labour Government used the ideological label ‘New Deal’, based
loosely on the ideas that underpinned the first ‘New Deal’.
149 Ben Lewis, ‘The “Consumer” and “Public” Interests under Public Regulation’
(1938) 46 Journal of Political Economy 97, 100.
125
http://www.legalservicesconsumerpanel.org.uk/publications/corporate_documents/documents/MOU_LSB_CONSUMERPANEL.pdf
http://www.legalservicesconsumerpanel.org.uk/publications/corporate_documents/documents/MOU_LSB_CONSUMERPANEL.pdf
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
It is perhaps no coincidence that after the failure of the financial
system in 2007,150 there was a scramble to re-organise the architecture of
the Financial Services Authority, which had previously been responsible
for a whole host of matters, including prudential regulation of the
financial services industry in the wider public interest and consumer
protection in the consumers’ interest.151 The Financial Services Act
2010,152 comprehensively split these functions up to include the Prudential
Regulatory Authority (concentrating on economic and financial stability),
the Economic Crime Agency and the Financial Conduct Authority
(concentrating on the conduct of business regulation). The latter now has a
much less consumer orientated role than originally undertaken by the
Financial Services Authority.153
The foregoing has sought to explain that there are a number of factors
built into the fabric of the LSA 2007 which might explain why the product
of regulation is now orientated towards the consumer interest. On this
basis alone there remains an interesting avenue of work to assess the
extent to which the LSA 2007 was itself the subject of capture by those
with a consumer interest. The following moves away from considering
these inherent features of the LSA 2007 to consider how the LSB has
approached 3 instances of regulatory decision making.
5. CONSUMER CAPTURE -REFERRAL FEES, LAY CHAIRS
AND THE LETR
Referral fees involve payments by lawyers to organisations who are in
a position to secure potential clients eg estate agents, insurance companies
and trade unions. The subject of referral fees has been very
150 Evan Turgeon, ‘Boom and Bust for Whom? The Economic Philosophy behind
the 2008 Financial Crisis’ (2009) 4 Virginia Law and Business Review 1.
151 Financial Services Act 2010.
152 Ibid.
153 This was previously going to be named the Consumer Protection and Markets
Authority. Attention has been focused on the change of name in the following
paper: – James Perry et al, ‘The new UK regulatory Landscape’ (2011) 84
Compliance Officer Bulletin 1-33 whereby it was noted that ‘branding the CMPA
as a consumer champion would be inappropriate, confusing and potentially
dangerous. The job of a regulator is to ensure that regulation is effective and
proportionate. That requires a balance between preventing abusive behaviour and
ensuring that regulation does not impose excessive costs and restrictions. See also
Nathan Willmott, ‘Equipping the Modern Regulator: Assessing the New
regulatory Powers under the Financial Services Act 2010’ (2010) 78 Compliance
Officer Bulletin, 1-28.
126
THE DENNING LAW JOURNAL
controversial.154 Following the OFT “Competition in the Profession’s
Report” in 2000,155 the Law Society changed its regulations to allow
referral fees in 2004, as this form of restriction was regarded as being anti-
competitive.156 The rationale was that there was no apparent reason why
an out-right ban on referral fees could be regarded as proportionate. It was
argued that they would benefit access to justice by providing a less
intimidating way of accessing lawyers. Five years after the Law Society
relaxed its regulatory rules to allow referral fees, the Law Society voted to
support a ban on referral fees.157 In the interim period an industry of
claims management companies emerged. Certain law firms were buying
blocks of claims that had been assembled by claims management
companies. The Law Society’s objections to referral fees were based on
the following arguments: (1) The financial relationship between lawyers
and introducers had the potential to lead to the needs of the referrer being
placed above those of the client; (2) Law firms having become reliant on
buying work from claims management companies had framed their
business plans accordingly meaning that, through competition, claims
management companies would sell work to the highest bidder. (3) Given
that there is no certainty that a claim would be successful, and that the
cost of the referral fee had to be recovered, referral fees added
unnecessary costs to legal advice because a percentage of cases have to be
won to compensate for those that have not. This, it was argued, could lead
to lower quality advice as lawyers would be forced to cut corners to
deliver advice and make profits. (4) A further argument was made that
referral fees cut choice and access to justice by pushing consumers to use
referred lawyers, as opposed to the most appropriate lawyers and/ or the
154 John Cooper, ‘Referral Fees: Corrupt and Criminal’ (2012) 176 Criminal Law
and Justice Weekly 29; Katherine Dillon, ‘Referral Fees and PI- the Way
Forward?’ (2007) 4 Journal of Personal Injury Law 324.
155 OFT, Competition in Professions (OFT328, 2001).
156 Paula Rohan, ‘Law Society Votes to Allow Referral Fees’ (Law Society
Gazette, 9 January 2004) accessed 22 July 2014; Law Society, ‘Referral Fees: An
Overview’ (The Law Society, 7 March 2006)
accessed 22 July 2014
157James Dean, ‘Law Society Council Votes Against Referral Fees’ (Law Society
Gazette Online, 2009) accessed 22 July 2014.
127
http://www.lawgazette.co.uk/news/law-society-votes-allow-referral-fees-0
http://www.lawgazette.co.uk/news/law-society-votes-allow-referral-fees-0
http://governance.lawsociety.org.uk/secure/meeting/201322/SRA_Board_Paper_Public_Item_8_-_Referral_Fees.pdf
http://governance.lawsociety.org.uk/secure/meeting/201322/SRA_Board_Paper_Public_Item_8_-_Referral_Fees.pdf
http://www.lawgazette.co.uk/news/law-society-council-votes-against-referral-fees
http://www.lawgazette.co.uk/news/law-society-council-votes-against-referral-fees
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
best quality.158 The Law Society noted that a number of personal injury
claims were dealt with by what have been termed “Personal Injury
factories”, employing a largely unqualified workforce. Overall the Law
Society deemed that referral fees were doing untold damage to the
reputation of the profession.159
In light of the new competitive environment brought about by the
LSA 2007 and changes to legal aid funding that lawyers were faced with
in 2009, it would be easy to dismiss the claims of the Law Society as
reactionary and protectionist. However, in 2009 Lord Justice Jackson,
undertaking a comprehensive review of civil litigation costs, advocated a
ban on referral fees in personal injury cases for similar reasons to those
outlined above. The report noted the inappropriateness of having victims
of personal injuries traded as commodities. The report also argued that the
culture of ambulance chasing had led to the commoditisation of claims160
leading to serious problems in the insurance industry. This was largely
because the merits of claims were seldom assessed until they reached the
hands of lawyers, and that even then many claims were pursued
regardless.161 The cost of litigation meant that it was more cost effective
for many insurance companies to settle cases rather than try and defend
them. The problem was that this had resulted in an inexorable rise in
insurance premiums. The report also highlighted the fact that referrers
simply referred cases to the highest bidder and that this was inappropriate
from the perspective of justice.162
The LSB began a review of referral fees in 2009 in response to the
Law Society’s vote to ban them. In 2010 the LSB published proposals for
a consultation. It then published the consultation. The executive summary
in the consultation document noted that the LSB considered neither an
outright ban nor a “free for all” to be appropriate, but that there should be
increased transparency.163 It would appear that the Board had made up its
158 The Law Society, ‘Law Society Statement on Referral Fees’ (The Law Society,
2011) accessed 22 July 2014.
159 Dean (n 157); The Law Society (n 158).
160 Review of Civil Litigation Costs: Final Report, (TSO, January 2010)
accessed 23 July 2014, 204-6.
161 Ibid.
162 Ibid.
163 Legal Services Board, ‘Referral Fees, Referral Arrangements and Fee Sharing
– Discussion Document on the Regulatory Treatment of Referral Fees, Referral
Arrangements and Fee Sharing’ (LSB, September 2010)
128
http://www.lawsociety.org.uk/news/press-releases/law-society-statement-on-referral-fees/
http://www.lawsociety.org.uk/news/press-releases/law-society-statement-on-referral-fees/
http://www.judiciary.gov.uk/Resources/JCO/Documents/Reports/jackson-final-report-140110.pdf
http://www.judiciary.gov.uk/Resources/JCO/Documents/Reports/jackson-final-report-140110.pdf
THE DENNING LAW JOURNAL
mind before publishing the consultation. Prior to publishing this
consultation the LSB had asked the LSCP to consider the subject. They
produced a report,164 drawing on research conducted by Vanilla
Research.165 This research had suggested that there was maybe a case for
requiring more transparency when a client’s referral would result in the
introducer receiving a payment. The substance of Vanilla Research’s
research was a relatively small number of interviews and group
discussions based on perceptions and preferences about making a claim.
Based on this arguably limited research the LSCP made a case that
referral fees should be retained. They did not seek to assess anything other
than the interests of the consumer. The LSB also commissioned Charles
River Associates166 to consider a cost benefit case for referral fees. Their
methodology was based on market failure theory. Charles River
Associates reported no problems with conveyancing referrals. They found
no evidence to suggest that referral fees in personal injury cases were
causing consumer detriment and advised that referral fees were unlikely to
be problematical.167 The cost benefit analysis included in the report makes
no reference to factors extending beyond consumer detriment and the
consumer interest.168
The LSB sought views on its 2010 consultation and on the
conclusions that it had initially arrived at, based on the LSCP’s opinion
and the Charles River report. A report combining these findings, with
accessed 29 July 2014.
164 Vanilla Research is a small market research consultancy specialising in
consumer perceptions. Vanilla Research, ‘Referral Arrangements Research’
(Vanilla Research, March 2010)
accessed 29 July 2014. This report was based on ten group discussions
with consumers or potential consumers.
165 Legal Services Consumer Panel, ‘Referral Fees’ (LSCP, May 2010)
accessed
29 July 2014.
166 Charles River Associates ‘Cost Benefit Analysis of Policy Options Related to
Referral Fees in Legal Services’ (Charles River Associates, May 2010)
accessed 22 July 2014.
167 Ibid.
168 Charles River Associates (n 166).
129
http://www.legalservicesboard.org.uk/what_we_do/pdf/20100929_referral_fees.pdf
http://www.legalservicesboard.org.uk/what_we_do/pdf/20100929_referral_fees.pdf
http://www.legalservicesconsumerpanel.org.uk/publications/research_and_reports/documents/VanillaResearch_ConsumerResearch_ReferralArrangements.pdf
http://www.legalservicesconsumerpanel.org.uk/publications/research_and_reports/documents/VanillaResearch_ConsumerResearch_ReferralArrangements.pdf
http://www.legalservicesconsumerpanel.org.uk/publications/research_and_reports/documents/ConsumerPanel_ReferralArrangementsReport_Final.pdf
http://www.legalservicesconsumerpanel.org.uk/publications/research_and_reports/documents/ConsumerPanel_ReferralArrangementsReport_Final.pdf
http://governance.lawsociety.org.uk/secure/meeting/185852/Consultant_report_on_referral_fees_May2010.pdf
http://governance.lawsociety.org.uk/secure/meeting/185852/Consultant_report_on_referral_fees_May2010.pdf
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
those of various stakeholders was published in September 2010.169 In this
report, the LSB posed a series of further questions and asked for
stakeholders to respond.170 Drawing heavily on the LSCP and the report
prepared by Charles River, the LSB argued that it had developed robust
evidence upon which to base its opinions. The final decision of the LSB
was to not recommend banning referral fees, but instead to introduce
requirements for transparency. The requirement for transparency meant
that consumers would have to be apprised of the fact that a referral fee had
been paid by a lawyer to the intermediary that introduced the lawyer to the
consumer. This decision was published in May 2011.171 The
recommendation for enhanced transparency has since been regarded as
both aspirational and unworkable.172 However, the extent to which the
LSB followed the advice proffered by the LSCP is clear to see from the
following excerpt from a letter sent by Chairman David Edmonds to the
then Chair of the LSCP, Diana Hayter:
“Your advice to us has been invaluable and was central to the
proposals we consulted on in September. Your advice set out a
persuasive analysis of the impact of referral fees on consumers
and was backed by empirical research which has ensured that
consumers’ views were fed into the process directly. Your
conclusion of ‘reveal, regulate so retain’ was the basis for our
discussions and has remained fundamental to our final decisions
on referral fees.”173
169 Legal Services Board, ‘Referral Fees, Referral Arrangements and Fee Sharing
– Discussion Document on the Regulatory Treatment of Referral Fees, Referral
Arrangements and Fee Sharing’ (LSB, September 2010)
accessed 27 July 2014.
170 Ibid.
171 Legal Services Board, ‘Referral Fees, Referral Arrangements and Fee Sharing
Decision Document’ (LSB, May 2011)
accessed 24 July 2014
172 Legal Futures, ‘Straw: Legal Services Board report on referral fees was
“gobbledegook”’ (Legal Futures, 29 September 2011) <
http://www.legalfutures.co.uk/news/straw-Legal Services Board-report-on-
referral-fees-was-gobbledegook> accessed 12 July 2014.
173 Legal Services Board, ‘Letter from David Edmonds to Dianna Hayter on
Referral Fees’ (LSB, 26 May 2011)
accessed 14 August 2014.
130
http://www.legalservicesboard.org.uk/what_we_do/pdf/20100929_referral_fees.pdf
http://www.legalservicesboard.org.uk/what_we_do/pdf/20100929_referral_fees.pdf
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/pdf/20110527_referral_fees_decision_press_release_final4.pdf
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/pdf/20110527_referral_fees_decision_press_release_final4.pdf
http://www.legalfutures.co.uk/news/straw-lsb-report-on-referral-fees-was-gobbledegook
http://www.legalfutures.co.uk/news/straw-lsb-report-on-referral-fees-was-gobbledegook
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/pdf/20110526_letter_david_edmonds_to_Dianne_Hayter.pdf
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/pdf/20110526_letter_david_edmonds_to_Dianne_Hayter.pdf
THE DENNING LAW JOURNAL
On the 9 September 2011, the Government announced that referral
fees in personal injury cases should be banned and that it was taking steps
to bring about legislation to this effect. In a written ministerial statement,
Jonathan Djanogly174 noted that the current arrangements had led to the
growth of an industry that actively encouraged individuals to bring cases,
regardless of the merits of their claim, and spoke of the effect on
insurance premiums. He also spoke of the serious effect on the reputation
and integrity of the legal profession.175 On 26 October 2011, Ken
Clarke176 announced that he was tabling amendments to the Legal Aid,
Sentencing and Punishment of Offenders Bill to ban referral fees in
connection with personal injury claims.177 The amendment was agreed to.
Section 56 of the Legal Aid, Sentencing and Punishment of Offenders Act
2012 now prohibits referral fees in personal injury claims.178 The Law
Society and the Bar, along with others, including a cross section of the
Government, remains committed to banning referral fees outright.179
It is clear from the foregoing that the combination of the LSCP’s
research and the cost benefit analysis undertaken by the economic and
business consulting firm, Charles River Associates, was deemed sufficient
to address the public interests associated with referral fees.180 In
particular, in arriving at their decision, the LSB noted:
“our scrutiny has been focused on the regulatory treatment of
referral fees, assessed against the regulatory objectives set out in
Section 1 of the Legal Services Act 2007. We do not offer a view
174 Parliamentary Under- Secretary of State for Justice.
175 Ministry of Justice press release, Better protection from intruders and
excessive compensation costs, 26 October 2011.
accessed 24 July
2014.
176 Secretary of State for Justice and Lord Chancellor.
177 HC Deb 1 November 2011 cc822-849.
178Legal Aid, Sentencing and Punishment of Offenders Act 2012 c 10 pt 2 s 60
179 The Bar Council, ‘Bar Council Welcomes move to ban Referral Fees but calls
for Further Action’ (Bar Council, 9 September 2011)
accessed 22 July 2014;
Catherine Baksi, ‘OFT Calls for Referral Fee Payment Regulation’ ( Law Society
Gazette, 25th February 2014) accessed 22 July 2014.
180 Legal Services Board (n 171).
131
http://www.justice.gov.uk/news/features/feature261011a
http://www.barcouncil.org.uk/media-centre/news-and-press-releases/2011/september/bar-council-welcomes-move-to-ban-referral-fees-but-calls-for-further-action/
http://www.barcouncil.org.uk/media-centre/news-and-press-releases/2011/september/bar-council-welcomes-move-to-ban-referral-fees-but-calls-for-further-action/
http://www.barcouncil.org.uk/media-centre/news-and-press-releases/2011/september/bar-council-welcomes-move-to-ban-referral-fees-but-calls-for-further-action/
http://www.lawgazette.co.uk/news/law-society-council-votes-against-referral-fees
http://www.lawgazette.co.uk/news/law-society-council-votes-against-referral-fees
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
on any wider public policy arguments for their retention or
abolition.”181
This assertion, coupled with the consumer and economic research
relied on by the LSB rather begs the question what does the LSB actually
consider the regulatory objective of ‘protecting and promoting the public
interest’ to involve? There was no reference to the public interest in any of
the documents published by the LSB. The force of the arguments from the
Law Society, The Bar,182 Lord Justice Jackson, The Association of British
Insurers, the former Lord Chancellor Jack Straw183 and, in part, the Office
of Fair Trading were apparently not considered. Arguably they reflected
the public interest, whereas the LSB seemingly favoured the findings of
the LSCP and the research from Charles River Associates.184 This
assertion is bolstered by the following response to a question posed by a
member of the House of Commons Justice Committee regarding the
LSB’s approach to referral fees and whether the Board had been
complacent in the approach it had taken to referral fees. David Edmonds,
Chair of the Board responded as follows:
“I think ‘complacency’ is not a word I would use. When my Board
was set up, we instituted a consumer panel that did a significant
tranche of research into this area and produced a report that said
they could not see consumer detriment arising from the
administration of referral fees in the legal services sector. The
Secretary of State and Parliament took a different view in terms of
181 Ibid.
182 Bar Council, ‘Joint Response of the Bar council and Criminal Bar Association
to the Legal Services Board Discussion Document on the Regulatory Treatment
of Referral Fees, Referral Arrangements and Fee Sharing’ (Legal Services Board,
21 December 2010)
accessed 29
July 2014.
183 Legal Futures (n 172).
184 Paradoxically, despite the ban, it is likely that is that Alternative Business
Structures, it will be easy to circumvent the referral fee ban in the future. John
Hyde, ‘SRA Powerless to Stop ABS Circumventing Referral Fee Ban’ (Law
Society Gazette, 13 June 2012) accessed 29 July 2014.
132
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/pdf/joint_response_of_the_bar_council_and_criminal_bar_association.pdf
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/pdf/joint_response_of_the_bar_council_and_criminal_bar_association.pdf
http://www.lawgazette.co.uk/news/sra-powerless-stop-abss-circumventing-referral-ban
http://www.lawgazette.co.uk/news/sra-powerless-stop-abss-circumventing-referral-ban
THE DENNING LAW JOURNAL
personal injury, and that part of the referral fee process has now
been banned.” 185
“I am both defensive and protective of our stance on referral fees.
As a regulator with an interest in economic regulation, I like to see
markets operating in a way in which markets can operate, which is
that referrals are made, satisfactory solutions are found and you
don’t intervene where there is no evidence that you should
intervene. I guess there is a degree not of complacency but of
agnosticism on the part of my board, fuelled by the report of my
own consumer panel. If anyone was going to complain about, or
find evidence of, consumer detriment, it would be in the research
that they commissioned in this area, and they didn’t find any. That
is why, after a lengthy debate, my board took the decision that we
did take. As you have seen, the Minister took a different view over
personal injury.”186
This response evidences the strong ideological commitment that the
LSB has adopted towards the market. It also draws attention to the close
connection between the LSB and the LSCP. The attention seemingly paid
to the LSCP’s findings affirms, in part, some of the incidents of cultural
capture outlined in this paper. In terms of the ingredients that Carpenter
suggests for a finding of capture, if the fact that the Legal Aid and
Sentencing and Punishment of Offenders Act 2012 is an expression of the
public interest, then the regulatory decisions taken by the LSB shows a
policy shift away from the public interest and towards industry (special)
interest. The position adopted by the LSCP, their research and the
magnitude of their desire to see referral fees not banned shows action and
intent by a special interest in pursuit of the policy shift sufficiently
effective to have plausibly caused an appreciable shift in the regulator’s
(LSB) position.
Lay Chairs of Approved Regulators Regulatory Boards
The second decision taken by the LSB relates to the changes that they
have made to the Internal Governance Rules for all Authorised
Regulators. Prior to the change of these rules on the 20 February 2014 the
Authorised Regulators were able to appoint to their regulatory boards,
following general principles, anyone. That is to say that there was no bar
185 House of Commons Justice Committee, The Operation of the Legal Services
Board (2013 HC 963-1) 14.
186 Ibid.
133
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
on who the chairperson might be – provided that they were qualified in
terms of the skills, experience and qualifications. Therefore, the Chair of
the regulatory boards might be a lawyer, it might be a non-lawyer, it
might be a former practitioner whose days of practising were over as they
progressed their career. Now, the Chair of the Boards can only be a
layperson. Lawyers, and those with a background in the law need not
apply. A suggestion that the Chairperson of Approved Regulators Boards
must be a lay person was made in 2009 by the LSCP without any
empirical or theoretical basis.187 The suggestion was not adopted by the
LSB who cited it, at the time, as “a step too far.”188 As a result of what the
LSB perceived as difficulties dealing with the SRA & BSB in September
2013 they mooted a change of the Internal Governance Rules. The then
Strategy Director, Crispin Passmore, presented a paper at the LSB Board
on the 11September 2013189 where he explained the following:
“The LSB has been concerned that the regulators are not
consistently committed to the liberalisation of their regulatory
approaches. Whilst the key regulators have taken significant steps
forward in terms of allowing ABS, shifting their models towards
outcomes and re-focusing on risk based supervision, progress is
still held back by traditions of barriers to entry and cultural ties to
each regulator’s ‘bit’ or title within the legal profession. This
manifests in a number of ways in both policy substance and
governance arrangements.”190
187 Dianne Hayter, ‘Response to the LSB Consultation on ‘Internal Governance &
Practising Fees Rules’ (LSCP, 30 October 2009)
accessed 17 August 2014;
188 Crispin Passmore, ‘Lay Chairs of Regulatory Boards’ (LSB Board Meeting
Papers, 11 September 2013)
accessed 15 August 2014, 4.
189 Ibid.
190 Passmore (n 188) The Paper cites the following as reasons for the rule change:
‘SRA reluctance to remove separate business rule; SRA approach to in-house
solicitors ;SRA approach to multi-disciplinary partnerships; SRA pace of ABS
authorisation and over emphasis on looking like they are controlling entry (when
in actual fact less than 5 ABS licence have been refused).; SRA and others’
resistance to single appeals mechanism ;BSB reluctance to embrace non-barrister
leading entities; BSB refusal to enforce against outcomes; Regulators’ scepticism
about data transparency in general and failure to make the data they have in a
134
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He went on to further note that:
“The Executive assesses that this reticence to embrace the better
regulation principles can put the regulatory objectives at risk. In
particular, the continuing tendency to threaten innovation and
undermine competition, thus limiting consumer choice and
compromising access to justice” 191
Mr Passmore also picked up on the attacks that the LSB had received
about its approach to regulating. One of the most outspoken critics of the
LSB’s approach has been Baroness Ruth Deech, who, as it happens, has
for the last 5 years been Chairwoman of the Bar Standards Board:
“The Board may also wish to note the level of commentary about
the LSB’s relentless focus on consumer interests. This has been
described as a ‘cult of consumerism’ and that an ‘excessive focus
on the consumer interest may be to the detriment of the
professional interests and standards upheld by the lawyers’”. 192
The following quote from Mr Passmore’s paper leaves the motive
behind the restriction on allowing lawyers to become the Chairperson of
the Approved Regulator’s Board in little doubt.
“The question is whether further changes to Board composition
would help build greater proactivity in this area on the part of
regulators themselves. Overly strong ties to history, culture and
practice of self regulation by each part of the regulatory
community are a significant drag on regulators complying with the
better regulation principles and thus may put the regulatory
objectives at risk. It therefore seems probable that the tendency of
the regulators to hold on to a ‘what they know’ preference would
be diminished by insisting on ‘a fresh pair of eyes’ at chair level,
range of areas widely available to enable independent analysis (so called big data
analysis) ;Regulators’ handbooks remaining complicated and prescriptive;
Tendency to offer very detailed guidance in relation to changes which can be
taken as mandatory; Tendency to involve complex sub-committee structures to
scrutinise the micro- rather than macro – impact of proposed changes.’
191 Ibid.
192 Ibid.
135
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
provided that the boards as a whole have the right balance of skills
and knowledge around the table.” 193
These statements, along with others made by the LSB,194 dismissing
the points made by members of the legal profession, does signal a rather
narrow minded approach to discourse and decision making. Lord
Neuberger has made the point that it is a rather peculiar state of affairs to
dismiss points that have been constructively and intelligently made by
educated, qualified people, who are presumably capable of understanding
the boundaries of public life and suppressing self – interest.195 In all of
this – there is a delicious irony that Baroness Deech has had a very
successful career outside of the law, in public life, choosing never to
practise as a lawyer. She would, now, on a very minor technicality be
prevented from being Chairwoman of the BSB under the rules introduced
by the LSB in February 2014. However, to all intents and purposes she is
cut from the same cloth that many definitively lay chair people are cut
from.
What is interesting to this paper is how the policy articulated in
Crispin Passmore’s briefing, furthering the ideas suggested by the LSCP
was translated into a regulatory decision, which as noted, was adopted.
The following tracks the developments. Further to a resolution by the LSB
in October 2013 a consultation was launched on a fast track process,
meaning that there would only be 6 weeks for consultees to respond. The
consultation closed on the 19th November 2013. 14 of the 17 respondents
to the consultation indicated strong or very strong opposition to the
proposed rule change.196 Two of the three who agreed with the rule
193 Ibid.
194 ‘We want {legal professions} regulators to step back from dictating the
services offered and the structures of businesses operating in the legal services
market to allow market forces to play a greater role. This we believe will help
create a legal services market that is the right size for consumers.’ David
Edmonds, ‘Regulatory Standards and Assessing Regulatory Performance’ (Legal
Compliance Bulletin, 2012)
accessed 22
July 2014.
195 Neuberger, (n 40)
196 LSB, ‘Submissions Received to the Consultation on Lay Chairs for Front Line
Regulators’ (LSB, 2013)
accessed 14 July 2014.
136
http://www.legalservicesboard.org.uk/news_publications/speeches_presentations/2012/legal_compliance_bulletin_article_issue_20_july_2012.pdf
http://www.legalservicesboard.org.uk/news_publications/speeches_presentations/2012/legal_compliance_bulletin_article_issue_20_july_2012.pdf
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/Submissions_Received_To_The_Consultation_On_Lay_Chairs_For_Front_Line_Legal_Regulators.html
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/Submissions_Received_To_The_Consultation_On_Lay_Chairs_For_Front_Line_Legal_Regulators.html
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/Submissions_Received_To_The_Consultation_On_Lay_Chairs_For_Front_Line_Legal_Regulators.html
THE DENNING LAW JOURNAL
change were Which? and the LSCP. It is perhaps no surprise that the
LSCP agreed, given that they were the intellectual brainchild of the ideas
set out in the LSB’s position paper.197 No clearer evidence is forthcoming
than the following two statements made by the LSB that they had no
evidence for this statutory change. This paucity of evidence was picked up
by the 14 consultees who did not agree with the LSB.
“We acknowledge that this was ultimately a matter of judgement
based on our nearly four years of experience rather than on
quantifiable evidence. Indeed, the very nature of the issues being
considered here makes it unlikely that quantifiable evidence would
be available” 198
“The proposed change was built on the LSB’s view that although
the AARs have made significant progress by accepting the
principle of independent regulation and structurally separating
regulatory functions out from their representative arms, the
regulatory bodies remain tied too closely to the individual
branches of the profession that they oversee.”199
It takes something of a leap of faith for a regulator who prides itself on
being an “evidence based regulator” to jump from no evidence to arrive at
the foregoing statements. It is suggested that the LSB saw an opportunity
to speed up the pace of change in the legal services market as the terms of
office of the Chairs of the SRA and BSB end in December 2014. This is
aptly demonstrated in the following statements:
“In consultation we highlighted our view that this proximity is
detrimental to both the public and consumer interest. We also
197 LSB, ‘Chairs of Regulatory Boards – Consultation on an Amendment to the
Internal Governance Rules to Require that the Chairs of the Boards of the
Regulatory Arms of Each Applicable Approved Regulator be a Lay Person’ (LSB,
2013)
accessed 16 August 2014.
198 LSB, ‘Chairs of Regulatory Boards, Summary of Responses, Decision
Document on a Proposed Amendment to the Internal Governance Rules to
Require that the Chairs of Boards of the Regulatory Arms of Each Applicable
Approved Regulator be a Lay Person’ (LSB, 20 February 2014)
accessed
14 July 2014, 7.
199 Ibid 6.
137
http://www.legalservicesboard.org.uk/what_we_do/consultations/pdf/lsb_consultation_on_lay_chairs_08_10_13.pdf
http://www.legalservicesboard.org.uk/what_we_do/consultations/pdf/lsb_consultation_on_lay_chairs_08_10_13.pdf
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/pdf/20140219_LSB_Lay_Chairs_Summary_Of_Responses_And_Decision.pdf
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/pdf/20140219_LSB_Lay_Chairs_Summary_Of_Responses_And_Decision.pdf
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
outlined our view that overly strong ties to the history, culture and
rules of professional self- regulation within specific sub-groups
can act as a significant drag on the better regulation principles and
therefore put the regulatory objectives at risk. In particular this
negatively impacts on the objective of promoting competition in
legal services in order to improve innovation, value, consumer
choice and therefore access to justice.” 200
“Further, we outlined our view that requiring the chairs of the
regulatory boards to be lay would be likely to provide a
proportionate route to greater regulatory independence. In
proposing this change we acknowledge the crucial role played by
chairs in leading their boards. In many cases, an inevitable effect
of membership of a profession will be to influence behaviour
when chairing a regulator. Given the importance of the chair and
the greater time and support s/he has to shape discussion and
consider issues, this influence could be disproportionately
important.” 201
Given the LSB holds itself out to be an evidence based regulator it is
strange that they did not consult any evidence. It is rather questionable
why a much broader body of literature on the subject was not considered.
This literature draws attention to the way in which lay involvement can,
and does skew the decision making process of a board. A portion of this
work specifically addresses the questions of how lay involvement,
especially where understanding of the matter at hand is important,
contributes to ineffective decision making.202
The timing of the LSB’s decision also raises questions about its
attitude to regulatory decision making. At the same time that the Board
200 Ibid 6.
201 Ibid 6.
202 Christine Hogg and Charlotte Williamson, ‘Whose Interests Do Lay People
Represent? Towards an Understanding of the Role of Lay People as Members of
Committees’ (2001) 4 Health Expectations 2; William Rothstein and Linh
Phuong, ‘Ethical Attitudes of Nurse, Physician, and Unaffiliated Members of
Institutional Review Boards’ (2007) 39 Journal of Nursing Scholarship 75; Guy
Holburn and Richard Van den Bergh, ‘Consumer Capture of Regulatory
Institutions: The Creation of Public Utility Consumer Advocates in the United
States’ (2006) 126 Public Choice 45; Orit Dayagi-Epstein, ‘Representation of
Consumer Interests by Consumer Associations – Salvation for the Masses?
(2007) 3 The Competition Law Review 209; Les Carlson, ‘Use, Misuse, and
Abuse of Content Analysis for Research on the Consumer Interest’ (2008) 42 The
Journal of Consumer Affairs 100.
138
THE DENNING LAW JOURNAL
was pursuing these changes, a high profile story was unravelling at the
CO-OP which revealed some serious problems of lay involvement in
boards, and the problems that a Lay Chair can bring. It is ultimately not
good practice to pick on individual stories as evidence of anything.
However, given the fact that 2 high profile investigations203 were
commissioned investigating the governance arrangements of the CO OP,
it might have been pragmatic to reflect on these findings – which, as it
happens, drew attention to the problems brought about by an unqualified
and largely lay Board with a lay Chair.204
This example demonstrates a narrowness of approach by the LSB and
a wholesale casual connection between the policies initiated by the LSCP
– right the way through to execution, despite vociferous opposition by
those who responded to the consultation. It is possible to detect right
through the decision document, published by the LSB, that actually what
it wanted to do was to pursue its agenda without steadfast opposition to its
plans. The document cites a rich culture and tradition of the professions as
reasons that progress is delayed. This in a way demonstrates a counter
cultural ideology and some of the features of cultural capture.
Statutory Guidance and the Legal Education Training Review (LETR)
The third decision taken by the LSB considered by this paper relates
to its decision to use s 162 LSA 2007 to produce statutory guidance on
how the “Approved Regulators” should make regulatory arrangements for
education and training. The background to the LETR, in and of itself, tells
a story. The LSB originally planned to conduct the review, however, it
203 The Co-operative Group, ‘Report of the Independent Governance Review –
The Co-operative Group’ (Lord Paul Myners, 7 May 2014) accessed 14 July 2014; The Co-operative Group, ‘Failings in
Management and Governance – Report of the Independent Review Into the
Events Leading to the Co-operative Bank’s Capital Shortfall’ (Sir Christopher
Kelly, 30 April 2014) accessed 14 July 2014.
204 The Kelly Report is replete with criticisms about the lay Board – which he
asserted did not fully understand the requirements of a regulated bank (page 9),
that the Board was oblivious to a number of issues (page 9), that there was a
failure of stewardship which was an inevitable consequence of the limited
relevant experience of the individual Board members, that there was a serious
problem because the CBG failed to have relevant banking experience (page 10),
that the Board was hampered by the lack of banking experience of the Chair –
page 11.
139
http://www.co-operative.coop/PageFiles/989348879/Report_of_the_Independent_Governance_Review.pdf
http://www.co-operative.coop/PageFiles/989348879/Report_of_the_Independent_Governance_Review.pdf
http://www.co-operative.coop/PageFiles/989348879/Report_of_the_Independent_Governance_Review.pdf
http://www.thekellyreview.co.uk/documents/168461-07-Kelly%20Review-FINAL%20REPORT-30APR14.pdf
http://www.thekellyreview.co.uk/documents/168461-07-Kelly%20Review-FINAL%20REPORT-30APR14.pdf
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
was persuaded to let the SRA, BSB and the as then ILEX professional
standards board to take the lead under the LSB’s oversight.205 It has been
argued that this change occurred amidst allegations that the LSB was at
risk of going beyond its oversight role.206 The then Chairman of the LSB
set out his support and expectations for the report in the annual Lord
Upjohn Lecture.207 The LETR took longer than expected to produce its
final report. During the research phase many consultations and calls for
evidence were made.208 Throughout the research phase the LSCP made a
formal response to the consultation.209 This response by the LSCP set out
a powerful vision for what education and training should look like. In
addition, the LSCP took the liberty of writing to the head of the LETR
research team, Professor Julian Webb, urging the team to “put the interest
of consumers at the forefront of its recommended scheme”. Moreover, the
LSCP urged the team to take the once in a generation opportunity to
produce a ‘bold blueprint’ for change in legal education and training.210
They asserted that ‘vested interests’ were striving to water it down.211
205 Legal Futures, ‘Edmonds to Back Education and Training Review as LSB
Role is Curbed’ (Legal Futures, 18 November 2010)
accessed 14 August 2014.
206 Ibid.
207 David Edmonds, ‘Training the Lawyers of the Future – A Regulator’s View’
(LSB, 19 November 2010)
accessed 16 August 2014.
208 LETR, ‘Setting Standards, The Future of Legal Services Education and
Training Regulation in England and Wales’ (LETR, June 2013)
accessed 16 August
2014.
209 LSCP ‘Response to the LETR Consultation on Legal Education and Training’
(LSCP, 21 May 2012)
accessed 17 August 2014.
210 Elisabeth Davies, ‘Letter from Legal Services Consumer Panel to Prof Julian
Webb – Legal Education Review Team’ (LSCP, 23 October 2012)
accessed 14 August 2014.
211 Legal Futures, ‘Be bold and Ignore the Vested Interests LETR Told’ (Legal
Futures, 25 October 2012) accessed 14 July 2014.
140
http://www.legalfutures.co.uk/latest-news/edmonds-to-back-education-and-training-review-as-lsb-role-is-curbed/print/
http://www.legalfutures.co.uk/latest-news/edmonds-to-back-education-and-training-review-as-lsb-role-is-curbed/print/
http://www.legalservicesboard.org.uk/news_publications/speeches_presentations/2010/de_lord_upjohn_lec.pdf
http://www.legalservicesboard.org.uk/news_publications/speeches_presentations/2010/de_lord_upjohn_lec.pdf
http://letr.org.uk/wp-content/uploads/LETR-Report.pdf
http://www.legalservicesconsumerpanel.org.uk/publications/consultation_responses/documents/2012-05-21LETRsubmission.pdf
http://www.legalservicesconsumerpanel.org.uk/publications/consultation_responses/documents/2012-05-21LETRsubmission.pdf
http://letr.org.uk/wp-content/uploads/Legal-services-consumer-panel1.pdf
http://www.legalfutures.co.uk/latest-news/be-bold-ignore-vested-interests-letr-told/print/
http://www.legalfutures.co.uk/latest-news/be-bold-ignore-vested-interests-letr-told/print/
THE DENNING LAW JOURNAL
The LETR team published its findings on 25 June 2013212 and it is no
understatement that the reaction to it was one that was damped with faint
praise.213 Whilst it was a thoroughly researched document, producing a
range of sensible recommendations, it did not, and was perhaps never
going to, seize the once in a generation opportunity to fundamentally
change legal education and training that the LSCP would have liked.
Arguably the research did not suggest that this was necessary. In many
regards the current system is not as broken as some might perceive and
thus does not require the sorts of developments argued by some as
necessary. Writing after the publication Neil Wightman, for and on behalf
of the LSCP argued that a major opportunity had been missed – asserting
that “it would have been wonderful to report that the way forward is to
redesign legal education and training around the consumer”. He should
perhaps be reminded that the law and its practise do not revolve solely
around the consumer (however the consumer’s interest might be
constructed). The rule of law, the public interest and a host of other
imperatives are, it is suggested, equally important factors for
consideration. The LSCP would have liked to have seen the following:
active quality assurance by regulators, periodic re-accreditation of
practitioners, on-going competency checks, updated professional service
standards and skills, training and education designed and delivered around
the consumer, a system of CPD that is fit for purpose and the creation of
new access points to improve social mobility.214 The reason for pointing
this out is that the LSCP were clearly disappointed with the LETR as were
the LSB. In a briefing paper supplied to the LSB’s Board Meeting on the
24 July 2013 it noted:
“The final report starts from the position that the current system of
education and training is fit for purpose. It therefore proposes
incremental change, backed up by the necessary infrastructure to
enable more significant change over time. This conclusion has
been reached on the basis of the evidence provided to the review
212 LETR (n 208)
213See in particular Richard Moorhead, ‘Why Everyone is Happy and No One is
Smiling’ (Lawyer Watch, 26 June 2013)
accessed 16 August 2014.
214 Neil Wightman, ‘LSCP Panel Member Neil Wightman’s Reaction to the
LETR.’ (LSCP, 25 June 2013)
accessed 16 August 2014.
141
http://lawyerwatch.wordpress.com/2013/06/26/letr-why-everyone-is-happy-and-no-one-is-smiling/
http://lawyerwatch.wordpress.com/2013/06/26/letr-why-everyone-is-happy-and-no-one-is-smiling/
http://www.legalservicesconsumerpanel.org.uk/how_can_we_help/blog/blog_entry_guest_june_2013.html
http://www.legalservicesconsumerpanel.org.uk/how_can_we_help/blog/blog_entry_guest_june_2013.html
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
which focuses heavily on the views of the profession. While we
would support the need for evidence there is a perception that the
report and its conclusions rely too heavily on the views of the
profession and do not give enough weight to the consumer
perspective (as is the view of the Legal Services Consumer
Panel).”215
As statements go – the one pertaining to the fact that the evidence
relied upon by the LETR is heavily focused on the views of the profession
is open to question. A casual perusal of the robust academic sources relied
upon by the LETR dispels this notion. This is before the wealth of
submissions to the various calls for evidence and consultations are
considered. In attempting to explain this statement – the LSB’s
subsequent actions tell its own story. In the LSB’s Board meeting that the
above briefing paper was received at, the Board resolved to propose draft
statutory guidance regarding education and training. This draft statutory
guidance was to be produced for its September Board Meeting.216 At the
September board meeting of the LSB it resolved to put this draft statutory
guidance out for consultation.217 The rationale for this statutory guidance
was as follows:
“In our view statutory guidance provides a clear and transparent
way to set out the LSB’s views in this area. It also provides a solid
basis for which they could review progress or take action if they
found evidence of detriment to the regulatory objectives or better
regulation principles.”218
215 Crispin Passmore and Alex Roy, ‘LETR Briefing Paper (13)54’ (LSB, 24 July
2014)
accessed 17 August 2014.
216 Ibid; Legal Services Board ‘Minutes of a Meeting of the Legal Services Board
on 24 July 2013’ (LSB, 26 July 2013)
accessed 17 August 2014.
217 Legal Services Board ‘Minutes of a Meeting of the Legal Services Board on
11 September 2013’ (LSB, 12 September 2013)
accessed 17 August 2014.
218 Emily Lyn, Crispin Passmore, Alex Roy, ‘Legal Services Board Meeting
Briefing Paper (13) 58’ (LSB, 11 September 2013)
accessed 17 August 2014. See also LSB ‘Increasing
142
http://www.legalservicesboard.org.uk/about_us/board_meetings/pdf/13_54_LETR_report_briefing.pdf
http://www.legalservicesboard.org.uk/about_us/board_meetings/pdf/13_54_LETR_report_briefing.pdf
http://www.legalservicesboard.org.uk/about_us/board_meetings/pdf/20130724_minutes.pdf
http://www.legalservicesboard.org.uk/about_us/board_meetings/pdf/20130724_minutes.pdf
http://www.legalservicesboard.org.uk/about_us/board_meetings/pdf/20130911_minutes.pdf
http://www.legalservicesboard.org.uk/about_us/board_meetings/pdf/20130911_minutes.pdf
http://www.legalservicesboard.org.uk/about_us/board_meetings/pdf/13_58_letr_consultation_paper.pdf
http://www.legalservicesboard.org.uk/about_us/board_meetings/pdf/13_58_letr_consultation_paper.pdf
THE DENNING LAW JOURNAL
This statement, articulating the LSB’s rationale, indicates that it
wished to set out its own vision for how matters associated with legal
education and training should develop. What is less clear is what robust
evidence base led them to set out this vision. There is certainly no
reference to research in any of the briefing papers, or the consultation
documents produced by the LSB. The framing of this statutory advice
also, as outlined above, provides the basis upon which, in the LSB’s own
words, momentum in this area might be maintained and a culture of
change might be brought about.219 As clearly indicated, this statutory
guidance is to be used by the LSB to assess the extent to which their
vision is being pursued. The clear implication is that they intend to hold
the Approved Regulators to account to their vision.
The draft statutory guidance was put out for consultation in September
2013. The period for consultation ended on the 11 December 2013. There
were 16 responses to the consultation, 6 from the Approved Regulators, 6
from representative bodies, 2 from legal education providers and one from
the LSCP.220 The majority queried whether there was any need for the
LSB to take this action. Many respondents questioned whether issuing
statutory guidance was a proportionate response for the LSB to take. On
the 4 March, despite many serious points being raised by the respondents
to the consultation, the LSB published, under s162 LSA 2007 – statutory
guidance on education and training.221 Whilst as noted earlier on the
LSCP has a wide range of ambitions when it comes to education and
training – it is perhaps no surprise that the statutory guidance issued by
the LSB reflects in a multitude of ways the ideas of the LSCP. The
flexibility in legal education and training Consultation on proposals for draft
statutory guidance to be issued under section 162 of the Legal Services Act 2007’
accessed 17 August 2014.
219 Lyn (n 218).
220 Legal Services Board, ‘Submissions Received to the Consultation on
Proposals for Draft Guidance on Education and Training’(LSB, December 2013)
accessed 17 August 2014.
221 LSB, ‘Guidance on Regulatory Arrangements for Education and Training
Issued Under s 162 of the Legal Services Act 2007’ (LSB, 4 March 2014)
accessed 17 August
2014.
143
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/pdf/20130918_consultation_paper_on_guidance_for_education_and_training_FINAL_for_publication.pdf
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/pdf/20130918_consultation_paper_on_guidance_for_education_and_training_FINAL_for_publication.pdf
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/pdf/20130918_consultation_paper_on_guidance_for_education_and_training_FINAL_for_publication.pdf
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/Submissions_Received_To_The_Consultation_On_Proposals_For_Draft_Guidance_On_Education_And_Training.html
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/Submissions_Received_To_The_Consultation_On_Proposals_For_Draft_Guidance_On_Education_And_Training.html
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/Submissions_Received_To_The_Consultation_On_Proposals_For_Draft_Guidance_On_Education_And_Training.html
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/pdf/20140304_LSB_Education_And_Training_Guidance_2.pdf
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/pdf/20140304_LSB_Education_And_Training_Guidance_2.pdf
http://www.legalservicesboard.org.uk/what_we_do/consultations/closed/pdf/20140304_LSB_Education_And_Training_Guidance_2.pdf
CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
LSCP’s ideas when it comes to education and training are set out in its
submission to the LETR research team. Without reference to any real
substantive research the LSCP sets out, in this document, a desire to see a
future education and training system built around an activity-based
authorisation regime for individuals and entities.222 In particular they
frame their entire submission around ‘activity based regulation,’
‘reaccreditation’ and ‘regulation of entities.’223 The LSB’s statutory
advice, which sets out 5 outcomes, which are also qualified in some detail,
produced by the LSB, reflects almost in its entirety these three themes,
with some flourishes that mitigate some of the more controversial
elements of the LSCP’s suggestions. It is, however, clear that the
intellectual bedrock of the LSB’s vision rests quite firmly on that
articulated by the LSCP. As acknowledged earlier in this paper this is to
be expected as a result of the construction of the LSB and its consumer
panel. The point at issue is, in the face of a robust piece of work
conducted by the LETR team which laboured for 3 years to produce a
report - where is the intellectual basis of the LSB’s statutory guidance?
Moreover, as outlined earlier the LSB and LSCP were clearly not
convinced by the LETR report and its apparent neglect of the Consumer.
The actions taken by the LSB, drawing on the LSCP’s robust views in this
area, once again suggest that the consumer it being prioritised ahead of at
least thoughtful consideration of the public interest. Where the public
interest lies in all of this is open for discussion, however, designing an
education and training system around the consumer is, for a spectrum of
reasons, unlikely to protect and promote the public interest.
6. DISCUSSION
The aforementioned three illustrations of the way in which the LSB
has made decisions reveals, firstly, an instance in which the public interest
was, by the LSB’s own admission, not taken account of. Secondly, a
decision that was taken by the LSB which, by its own admission, was
based on little, to no, evidence. Thirdly, a decision was made in the
context of education and training which was both un-evidenced and
arguably un-necessary. What unites all three of these illustrations is the
reliance placed on research or policy set forth by the LSCP to the LSB. In
222 LSCP ‘Response to the LETR Consultation on Legal Education and Training’
(LSCP, 21 May 2012)
accessed 17 August 2014.
223 Ibid 4.
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considering the three elements of capture, discussed earlier on in this
paper, it is difficult to conclusively arrive at an understanding of what the
public interest is. This, as previously noted, requires further substantial
investigation. However, in at least one of the cases, a clear alternative to
the path preferred by the LSB was taken by the Government acting in a
legislative capacity. They were robustly supported in this by a welter of
other organisations and impartial commentators. As to the policy approach
advocated by the LSB – this clearly favoured the LSCP’s preferred policy
outcome and a discernible move was made by the LSB away from the
public interest as maybe otherwise understood. By virtue of the LSCP’s
expressed policy, it is clear that there was intent by them in favour of a
special interest, purportedly representing the ‘consumer interest.’
With regards to the second decision taken by the LSB, in light of the
parameters of regulatory capture suggested at the beginning of this paper
– it is slightly more difficult to make a clear determination on this. Firstly,
understanding where the public interest lies is, as noted above a matter of
some determination. This paper has clearly indicated that there is
scholarship on the wisdom of lay boards in regulatory decision making.
Doubt has been cast over whether lay boards and lay chair people are
necessarily as ideal as some would promote them to be. The LSCP
certainly set out their desire for lay chair persons of the regulatory boards
a long time ago. It is unclear what their intellectual argument for this was.
What is clear, however, is that the decision taken by the LSB on lay chairs
favoured the LSCPs position on this matter. Given that the LSCP had a
positive policy on this matter this demonstrates intent on their behalf to
realise this change. Therefore, in this case, again, subject to a
determination of the public interest, it appears that some of the conditions
for finding capture are apparent in this situation.
Regarding the last example, again, the public interest in this context is
a matter for some discussion. What is, however, clear is that the LSB
clearly favoured the LSCPs policies in this area – and clearly developed
their thinking together on this. This is, as clearly articulated, not reflective
of the whole broad thrust of thinking and interests in this area. The LSCP
has a clear policy to design education and training around the consumer.
The mere fact that they negate to consider the public interest is a cause for
concern. In a way this suggests that they are preoccupied with their vision
and policies – absent any real theoretical or research backing. Moreover,
their lack of appetite to take account of the range of other interests which
are necessary to be considered, is concerning. The fact that the LSB’s
statutory guidance reflects in substance the policies of the LSCP
demonstrates a move away from some important public interest
considerations.
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CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
In drawing the various strands of this paper together – when it comes
to making a claim that the LSB has been captured; a number of
considerations need to be born in mind. The first of which is that there are
a range of structural factors which lead to the prioritisation of the
consumer interest. It would be incorrect to hold the LSB accountable for
following the letter of the LSA 2007. It would also be incorrect to hold the
LSB accountable for setting up the LSCP and working with it. If anything,
an allegation of consumer capture rests at the legislative stage – where it
is arguable that the Government became captured by the consumer lobby
and entrenched voices within Government who advocated the promotion
of the consumer interest.
This paper has sought to explain the problems associated with the
consumer interest and its promotion. Moreover, it has drawn on various
critiques of commonly used economic methodologies used in decision
making which promote a version of the consumer interest. This has, in
part, illustrated some of the attendant dangers of promoting consumer
orientated policies without thoughtful consideration of the public interest.
The aforementioned economic methodologies appear not to take account
of the public interest. The LSB appears to have struggled with
conceptualising the public interest. In attempting to make a judgment as to
whether the LSB has become captured by the consumer interest it is
important to Carpenter’s definition to discover whether special interests
have actively and knowingly sought to move policy away from the public
interest towards the consumer interest. The foregoing has illustrated that
there is a close connection between the LSB and the LSCP. It has also
shown that the LSB has a strong ideological bent and that the evidence to
back up some of its policies is both formed by the LSCP and is wanting in
some regards. It is plausible to suggest that the LSB believes that it is
protecting and promoting the public interest through the decisions that it
has made. It would also be a dramatic accusation to make that the LSCP
actively wished to knowingly and actively advance policies away from the
public interest. For this reason, and existing problems surrounding the
public interest in the context of legal services, it would likely be a
challenge to conclusively meet Carpenter’s evidential burden for capture.
If anything this paper charges both the LSCP and the LSB with failing to
sufficiently get to grips with, and respect, the public interest.
In terms of making an assertion based around capture, Kwak’s
theories about cultural capture, McCarty’s theories around capture and
provision of expertise by interest, and Zingales’ theories about economists
capture – all provide promising routes of enquiry. As illustrated
throughout this paper – a variety of pieces of evidence exist to suggest
that these forms of capture might all exist. At present these remain
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suggestions and fuller examination needs to be made of each. It remains a
theoretical issue for future resolution how each of these forms of capture
are to be resolved with Carpenter’s definition. The aspect of Carpenter’s
definition that requires intent on behalf of the interest group is difficult to
rationalise with the theories posited by Kwak in the context of cultural
capture. By its very nature culture does not necessarily manifest intention
or a form of mens rea. Kwak’s notion of cultural capture appears a
particularly appealing way of explaining many of the approaches taken by
the LSB. The way in which particular tools have been selected for
decision making, the ideological predisposition of the member of the LSB,
the proactive approach that the LSB have adopted, often in the face of
expert comment advocating alternative approaches, all points to a general
culture inside the regulator which prioritises the consumer interest. The
pursuance of a consumer orientated set of policies is perhaps culturally no
surprise.
7. CONCLUSION
This paper concludes, by suggesting that there is little prospect of the
LSB changing its approach to the consumer interest. Sir Michael Pitt, the
new Chairman of the LSB has re-affirmed the existing ideological
predisposition of the LSB in a recent paper supplied to the LSB’s May
2014 Board Meeting. He stated:
“The LSB has been criticised for its ‘consumer obsession’ by
some of the regulators and indeed the senior judiciary. I am
similarly obsessed and for me it is a starting point. We still have a
market which is far too intimidating, too uniform and, in many
cases, too expensive.” 224
“In the wider economy, customers are generally best served by
well-functioning markets, with public interest safeguards and
regulation targeted only where justified in light of the fundamental
characteristics of the market (for example the inevitable disparities
224 Sir Michael Pitt, ‘LSB Strategy: Chair’s Perspective Paper 14(28)’ (LSB, 22
May 2014)
accessed 19
August 2014, 2.
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CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
in knowledge between consumers and the professionals they
consult)”225
“I would like to think that every decision we make is informed by
a “consumer interest” test of whether legal services are becoming
more rather than less accessible. I believe there is much to be
gained in this respect by learning from the Consumer Panel and
the OLC who have access to significant evidence relating to
consumer behaviours and experiences.” 226
In drawing together the various elements of this paper the following
points can be made. Firstly, there are a number of robust reasons why
regulating in the consumer’s interest is not always a sensible thing to do.
Secondly, there are a number of structural factors, inherent in the design
of the LSA 2007 which led to a prioritisation of the consumer interest.
This is compounded by modern decision making methods which
inherently rely upon narrow decision making tools borrowed from crude
and basic economics. For reasons to do with quantifying the public
interest and apportioning an active intention on behalf of the consumer
lobby to detract from the public interest – it is difficult to assert, according
to the evidential burden set out by Carpenter that the LSB has been
captured by the consumer interest and consumer lobby. It remains,
however, plausible according to Kwak’s theory of cultural capture that a
more subliminal form of capture exists. The source of this capture is
derived from a number of sources. Irrespective of this – the danger
remains that regulation of the legal profession and legal services will
continue, as it appears to have done since 2007, to advance an unreflective
consumer orientated agenda. Aspects of this agenda might service the
public interest. However, for reasons set out earlier to do with the
problems of promoting an individual interests, which the market does – it
remains much more than a possibility that the public interest is neglected.
It remains imperative that greater focus is placed on the public interest –
such that this interest is not subordinated.
225 Ibid 2.
226 Ibid 3.
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CONSUMER CAPTURE AND THE LEGAL SERVICES ACT 2007
1. Introduction
2. Regulatory Capture AND the Consumer Interest
Regulatory Capture
3. The Consumer Interest
4. Structural positioning of the Consumer Interest
5. Consumer Capture -Referral Fees, Lay Chairs and the LETR
Lay Chairs of Approved Regulators Regulatory Boards
Statutory Guidance and the Legal Education Training Review (LETR)
6. Discussion
7. Conclusion