In house lawyers, regulation and the Legal Services Act 2007

Issued on 17 October 2011

In-house lawyers, regulation and the Legal Services Act 2007

The information below concerns in-house lawyers and the Legal Services Act 2007, specifically section 14 and section 15(4).

In-house lawyers must satisfy themselves that their employers comply with section 14 of the Legal Services Act 2007 and, in particular, whether or not they come within the exemption in section 15(4) of the LSA. Evidence of the intention of the Government at the time includes the comments of the Parliamentary Under Secretary of State for Justice, Bridget Prentice MP, in June 2007 (see "Column number: 186").

The SRA has decided to delay the implementation of rule 4.12(a) in relation to associations and rule 4.13 (of the SRA Practice Framework Rules 2011) in relation to insurers until six months after the SRA has become designated as a licensing authority.

In the interim, rule 13.06 of the Solicitors' Code of Conduct 2007 will remain in place for solicitors employed by insurers. We will be reviewing the overall policy regarding the provision of legal services by in-house lawyers to members of associations and the holders of legal expenses insurance.

There may be different views about whether associations or legal expenses insurers should be required to become "licensed bodies" if they wish to provide such services. Many organisations within these categories wish to become licensed bodies and have potentially been affected by the time-lapse between the introduction of section 14 (January 2010) and the implementation of the licensing regime by the SRA. In contrast, some associations wish to continue providing services to a limited range of members.

In-house lawyers must bear in mind that there are significant differences between the statutory and regulatory positions. For present purposes, section 14 applies to the employer. Rules or guidance by the SRA apply to the in-house lawyer.

The SRA's provisions cannot and do not provide exemption for employers from the provisions of section 14 of the Legal Services Act. It is a matter of law and fact whether an employer comes within section 15(4). Some guidance is available from the Explanatory Note to the Legal Services Act:

Section 15(4), together with section 15(5), provides that where an individual employee carries out a service for an employer which would ordinarily be a reserved legal activity (for example, litigation services), the employer will not be treated as carrying out a reserved legal activity if the service is not provided to the public or a section of the public in the course of or as an aspect of the employer's business.

The effect of this is, for example, that where a body employs lawyers to provide in-house legal services to that body or to certain persons connected to the body, but not to the public or a section of the public, the body in question will not need to be an authorised person. This does not alter the fact that any individual lawyers which the body employs to provide reserved activities will need to be authorised persons.

 

Views may differ on whether arrangements come within this or not. Our current view is that members of genuine associations that cannot be categorised as the public or a section of the public and holders of insurance policies for whom insurers' lawyers act on a subrogated basis are likely to be sufficiently connected to come within section 15(4). The position of legal expenses arrangements is less certain. In all circumstances, the facts of the arrangement will be critical.

If it transpires that an employer is not within section 15(4) and commits an offence under section 14, it is the in-house lawyer who may face regulatory difficulties with the SRA's rules. Our rules are primarily focused on ensuring that the public is protected and cannot provide a defence to assistance to illegality.

Our concern in preserving the current provisions in the 2007 Code is to avoid increasing the risk of such difficulties as a result of enhancing regulation of in-house lawyers pending the introduction of the regulation of licensed bodies, particularly since the actual impact of sections 14 and 15(4) will be highly fact-sensitive.



Solicitors' Code of Conduct 2007, rule 13.06

13.06 Insurers

  • (1)

    If you are employed by an insurer subrogated to the rights of an insured in respect of any matter you may act on behalf of the insurer in relation to that matter in the name of the insured, and also:

    • (a)

      act on behalf of the insured in relation to uninsured losses in respect of the matter;

    • (b)

      act in proceedings both for the insured and for a defendant covered by another insurer where the insurers have agreed an apportionment of liability; and/or

    • (c)

      act in the matter on behalf of the employer and another insurer in the joint prosecution of a claim.

     
  • (2)

    If you are employed by a legal expenses insurer you may, provided that the insured has given specific consent, act for an insured in any proceedings which are covered by the legal expenses insurance policy, provided that the proceedings do not include:

    • (a)

      a personal injury claim (whether made by or for the insured); or

    • (b)

      a civil claim for damages which:

      • (i)

        exceeds the small claims limit from time to time in operation in the county court; and/or

      • (ii)

        is allocated or re-allocated to the fast track or the multi-track.