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Advice to the Lord Chancellor
on
the Law Society's Application to amend
Rule 16 of the Solicitors' Practice Rules
and
Rule 4 of the Solicitors' Overseas Practice Rules 1990

January 2003

Introduction

Summary

Principles
The Law Society's Application
Conclusion

Advice to the Lord Chancellor

Introduction
The Law Society's Application
ACLEC's consideration of the rule changes
Panel's consideration
Conclusion

Annex A: Proposed Amendments

Introduction

The Legal Services Consultative Panel (LSCP) was established by the Access to Justice Act 1999 in January 2000.

The Panel has considered a reference made to it by the Lord Chancellor concerning an application to amend Rule 16 of the Solicitors' Practice Rules and Rule 4 of the Solicitors' Overseas Practice Rules 1990. The Rule change is needed to apply the revised Code of Conduct of the Council of the Bars and Law Societies of the European Union (CCBE) to solicitors' European cross-border activities. The Panel's advice was given in January 2003.

The advice is published on behalf of the Panel by the Lord Chancellor's Department.

Copies of the Panel's advice are available from the Panel Secretariat (Tel: Louise Joyce, on 020-7210 8816 or e-mail her: Louise Joyce).

The panel comprises:

Lord Justice Potter (Chairman)	Miss Karen Mackay *	Mr John Randall QC
Professor John Bell *	Mr Ian McNeil	Mr Simon Sapper
Professor Hugh Brayne *	Mr Charles Plant	Mr Alan Street
Lady Elizabeth Finsberg	Mr Richard Moorhead *	Ms Peta Sweet
		Dr Matthew Weait *
* Professor Bell, Professor Brayne, Miss Mackay, Mr Moorhead and Dr Weait joined the Panel on 1 January 2002.

Summary

• Principles

In considering and putting forward its advice on the application, the Panel has had regard to the principle central to the policy of the Courts and Legal Services Act 1990 and the Access to Justice Acts 1999, namely the development of legal services in England and Wales (and in particular the development of advocacy, litigation, conveyancing and probate services) by making provision for new or better ways of providing such services and a wider choice of persons providing them, while maintaining the proper and efficient administration of justice.
The Panel also took account of the five principles of good regulation identified by the Better Regulation Task Force (an independent group established in 1997 to advise the government) against which the appropriateness and effectiveness of any type of regulation should be tested, namely transparency, accountability, targeting, consistency and proportionality.

• The Law Society's application

The Law Society made an application to the Lord Chancellor for amendment of Rule 16 of the Solicitors' Practice Rules 1990 and Rule 4 of the Solicitors' Overseas Practice Rules 1990. The Rule change is needed to apply the revised Code of Conduct of the Council of the Bars and Law Societies of the European Union (CCBE) to solicitors' European cross-border activities. The Rules were first amended in 1988 to apply the CCBE Code. The CCBE revised the Code in 1998, although the revisions were relatively minor and did not change solicitors' obligations. The rules nevertheless needed to be amended to apply the revised version of the Code and the Establishment of the Lawyers Directive 98/5/EC.
The Advisory Committee on Legal Education and Conduct (ACLEC) considered the amended rules before it was abolished on 31 December 1999. ACLEC provided comments on the amended rules and the Law Society has taken these comments into account in the present application.
The Panel has been asked by the Lord Chancellor to provide advice on the application under Schedule 4 of the Courts and Legal Services Act 1990.

• Conclusion

The Panel is satisfied that the concerns raised by ACLEC have been considered by the Law Society and addressed in the amended rules. The Panel advises the Lord Chancellor that the rules should be approved.
The Panel also makes certain observations upon the entitlement of solicitors to make conditional or contingency fee arrangements in respect of tribunal proceedings.

Advice to the Lord Chancellor

• Introduction

This advice relates to the Law Society's application to the Lord Chancellor dated 26 July 2002 to amend Rule 16 of the Solicitors' Practice Rules 1990 and Rule 4 of the Solicitors' Overseas Practice Rules 1990. The Rule change is needed to apply the revised Code of Conduct of the Council of the Bars and Law Societies of the European Union (CCBE) to solicitors' European cross-border activities. The application was made under section 29 and Part II of Schedule 4 of the Courts and Legal Services Act 1990, as amended by Schedule 5 of the Access to Justice Act 1999. The Lord Chancellor referred the proposed rule change to the Panel for its advice under section 18A(3)(b) of the Courts and Legal Services Act 1990. The Panel considered the referral at its meetings on 28 October 2002, 25 November 2002,16 December 2002 and 27 January 2003.
In considering and putting forward its advice on the application, the Panel has had regard to the principle central to the policy of the Courts and Legal Services Act 1990 and the Access to Justice Acts 1999, namely the development of legal services in England and Wales (and in particular the development of advocacy, litigation, conveyancing and probate services) by making provision for new or better ways of providing such services and a wider choice of persons providing them, while maintaining the proper and efficient administration of justice.
The Panel also took account of the five principles of good regulation identified by the Better Regulation Task Force (an independent group established in 1997 to advise the government) against which the appropriateness and effectiveness of any type of regulation should be tested, namely transparency, accountability, targeting, consistency and proportionality.

• The Law Society's application

Rule 16 of the Solicitors' Practice Rules 1990 and Rule 4 of the Solicitors' Overseas Practice Rules 1990 apply the Code of Conduct of the CCBE to solicitors' cross-border activities. The current rules apply the Code as it was originally adopted in 1988. The Code imposed the following five obligations on organisations representing the legal professions of the member states of the European Union (EU) and of the European Economic Area (EEA):
1. to recognise the rules codified in the Code as the expression at that time of the consensus of all the Bars and Law Societies of the EC;
2. to adopt the rules codified in the Code as enforceable rules as soon as possible in relation to the cross-border activities of lawyers in the EC;
3. to take the rules codified in the Code into account in all revisions of national rules of deontology or professional practice with a view to their progressive harmonisation ("deontology" is defined in the Collins English Dictionary as "the branch of ethics dealing with duty, moral obligation and moral commitment")
4. to express the wish that the national rules of deontology or professional practice be interpreted and applied wherever possible in a way consistent with the rules in the Code;
5. to take into account the need to give training to young lawyers from other member states.
The CCBE revised the Code in 1998 and imposed a sixth obligation on organisations representing the legal professions as follows:
1. to deposit their codes of conduct at the secretariat of the CCBE so that any lawyer can get hold of the current code from the Secretariat.
There are a number of other amendments which are set out at Annex A to this advice. Although the revisions were relatively minor and did not change solicitors' obligations the Law Society needed to amend the rules to apply the revised version of the Code and to ensure that the changes are compatible with the Establishment of the Lawyers Directive 98/5/EC.

• ACLEC's consideration of the rule changes

The Advisory Committee on Legal Education and Conduct (ACLEC) considered the proposed changes in 1999 shortly before ACLEC was abolished. ACLEC noted that under the CCBE Code a lawyer should not be entitled to make a pactum de quota litis and was concerned that this might affect contingency fee and conditional fee agreements. ACLEC was also concerned about the inclusion of Switzerland which it was understood to be outside the European Union and the European Economic Area.
The Law Society did not formally respond but they did consider the points raised and drafted a reply to ACLEC which was submitted to the Panel as part of the further application. The Law Society were of the view that contingency fees and conditional fee agreements will not breach article 3.3 of the revised CCBE Code or rule 16 of the Solicitors' Practice Rules 1990 and set out the reasons in their draft letter.
The question raised by ACLEC on the inclusion of Switzerland has been overtaken by events. Following ACLEC's comments the Law Society changed the draft rules so that the notes relating to the Lawyers' Services Directive 77/249/EEC do not mention Switzerland. However, on 1 June 2002 the Services Directive was extended to include Switzerland. A further rule change to reflect this change will be submitted to the Council of the Law Society but this will not require Schedule 4 approval.

• Panel's consideration

As the draft rules had earlier been considered by ACLEC the Panel confined its consideration to the points which it had raised on Switzerland's inclusion in the rule and the question of pactum de quota litis. As mentioned above the concerns raised about the inclusion of Switzerland are no longer relevant.
The Panel has closely considered paragraph 3.3 of the CCBE Code which states at 3.3.1 that "a lawyer should not be entitled to make a pactum de quota litis" which is defined in 3.3.2. as a client undertaking to pay the lawyer "a share of the result". The Law Society takes the view that under a conditional fee agreement the solicitor does not obtain "a share of the result". In general, because of the provisions of the Access to Justice Act relating to the recoverability of costs, the Panel agrees. The prohibition contained in the language of 3.3.1 appears to be directed at a contingency fee agreement, where the lawyer will take a share of the result. It is clear from the Law Society's application that contingency fees are permitted to solicitors under the CCBE Code in matters where there is not a 'lis' (i.e. lawsuit). Hence, such fees are permissible in non-contentious matters. The Law Society does permit contingency fees in tribunal cases on the basis that they are generally categorised as 'non-contentious' business under English law. The issue which arises is whether the Law Society's position in relation to contingency fees in tribunal cases is consistent with paragraphs 3.3.1 of the CCBE Code, as set out above.
The Panel wrote to the Law Society on 2 December 2002 to seek clarification on the status of tribunal cases. The Law Society confirmed in its letter of 12 December 2002 that in its opinion contentious business did not include tribunal work. The Law Society confirmed that the Solicitors' Practice Rules do permit contingency fees in relation to tribunal cases. The Law Society's opinion is based on the following provisions in the Practice Rules and the Solicitors Act 1974 ("the Act"):
- Rule 8(1) of the Solicitors' Practice Rules 1990:
  
  "A solicitor who is retained or employed to prosecute or defend any action, suit or other contentious proceeding shall not enter into any arrangement to receive a contingency fee in respect of that proceeding, save one permitted under statute or by the common law."
- A "contingency fee" is defined in rule 18(2)(c) of the Practice Rules:
  
  "'contingency fee' means any sum (whether fixed, or calculated either as a percentage of the proceeds or otherwise howsoever) payable only in the event of success in the prosecution or defence of any action, suit or other contentious proceeding".
- "Contentious proceeding" is defined in rule 18(2)(b) of the Practice Rules:
  
  "'contentious proceeding' is to be construed in accordance with the definition of 'contentious business' in section 87 of the Act".
- Section 87 of the Act defines "contentious business" (and indeed "non-contentious business"):
  
  "'contentious business' means business done, whether as solicitor or advocate, in or for the purposes of proceedings begun before a court or before an arbitrator, not being business which falls within the definition of non-contentious or common form probate business contained in section 128 of the Supreme Court Act 1981;" and
  
  "'non-contentious business' means any business done as a solicitor which is not contentious business as defined by this subsection".
- The position under the Practice Rules reflects the common-law doctrine embodied in section 59 of the Act (contentious business agreements), which states in subsection (2) that:
  
  "Nothing in this section or in sections 60 to 63 shall give validity to -
  1. any purchase by a solicitor of the interest, or any part of the interest, of his client in any action, suit or other contentious proceeding; or
  2. any agreement by which a solicitor retained or employed to prosecute any action, suit or other contentious proceeding, stipulates for payment only in the event of success in that action, suit or proceeding".
- Paragraph (b) above has to be read in the light of the statutory provisions permitting conditional fees in relation to court proceedings where a conditional fee agreement meets defined criteria, and the courts' common-law extension of the principle in relation to conditional fees in arbitration proceedings where similar criteria are met.
- These considerations in turn supply the meaning of the words "save one permitted under statute or by the common law" in Practice Rule 8, which thus permits lawful conditional fee agreements in court and arbitration proceedings.
It is the Law Society's contention, that section 58(5) of the Courts and Legal Services Act 1990 as substituted by section 27 of the Access to Justice Act 1999 preserves the position as set out in the Solicitors Act 1974, and in consequence contingency fees are enforceable in relation to tribunal proceedings.
The Law Society conclude that contingency fees are prohibited by rule 8 of the Practice Rules in relation to court and arbitration proceedings (which are specifically referred to in the Act) but not in relation to tribunal proceedings (of which there is no specific mention in the Act). The Law Society has not sought an independent legal opinion but have clearly set out in their letter the reasons for their opinion on this point, which the Panel does not contest.
Having regard to the litigious nature of various modern tribunal proceedings, the Panel draws to the attention of the Lord Chancellor the restricted scope of the definition of "contentious business" contained in section 87 of the Act. This has two effects worthy of note.
1. Proceedings such as claims before employment tribunals are in their nature analogous to court or arbitration proceedings and, in particular, may result in a substantial award of damages. We understand that contingency fee agreements and conditional fee agreements are increasingly common in such cases and accordingly they represent the growth of a fee regime outside that which regulates conditional fees in respect of court or arbitration proceedings.
2. Section 87 of the Act effectively imposes a restrictive interpretation of the expression lis (or litis) as used in paragraph 3.3 of the CCBE Code in circumstances where it might otherwise be argued that such expression comprehends certain kinds of tribunal proceedings.