Memorandum Regarding Exemption from Authorisation of Local Authority Legal TeamsPublish date: 26/03/2021
A memorandum has been jointly prepared by Lawyers in Local Government with input from the Solicitors Regulation Authority (SRA) on exemption for authorisation under Section 15 Legal Services Act 2007. Thanks to the hard work of our President, Quentin Baker and Abdus Choudhury, Deputy Director, Legal and Governance at One source, together with the significant contribution of Fiona Anthony from nplaw, who worked hard to ensure guidance as to the circumstances in which this approach to regulation will be appropriate, we now have some clarity on this historical issue.
Local authorities regularly collaborate and trade services with each other and with other closely linked organisations across the public and not for profit sector. There are many examples of local authority legal teams undertaking legal work for other organisations via collaborative or traded arrangements and given the nature of such arrangements and the public benefit derived from them it is sensible to facilitate these with a proportionate level of regulation without the need for full authorisation.
The majority of local authority legal departments undertaking work for external clients focus on work for other public sector organisations such as other local authorities, schools and local charities and sometimes also police, fire and probation services, NHS and non-departmental public bodies.
Many will confine their external work to organisations within their region but there may be occasions where opportunity exists to assist organisations from further afield, particularly where one legal department has the capacity or expertise in a particular area of law.
Arrangements will vary but in general the cost of providing such services will be recovered and may in some cases generate a surplus for the authority providing the service. Any such surplus either helps to subsidise the provider authority's expenditure on legal services or their general expenditure. In both situations the surplus acts to help the provider authority to deliver front line services and reduce the burden on local tax payers.
The recipient authority receives the benefit of advice from specialist lawyers without having to spend time and money in educating a lawyer instructed from private practice to understand the context within which they operate. Further, the cost to the recipient authority is usually much lower than it would be to instruct private law firms, thereby further reducing the overall spend of public money and releasing funds to deliver front line services. It may also be that smaller authorities don't have sufficient work to employ a lawyer in a particular specialism but sometimes that work needs to be done on an occasional basis.
Local authorities by their nature exist to serve their communities and are required to apply the whole of their income, and any capital that they expend, for public.
purposes. Depending upon individual arrangements, it is most common for any surplus generated by the local authority legal team to be returned to the local authority itself and thus used for public purposes.
Section 15 Legal Services Act 2007 (LSA 2007) sets out whether an organisation needs to be authorised by the SRA or another approved (legal services) regulator in respect of undertaking reserved legal services, which are set out in section 12 and schedule 2 of the LSA 2007:
- the exercise of a right of audience before certain (higher) courts
- the conduct of litigation (which can be described as the taking of formal steps in proceedings, such as issuing a claim or filing documents or forms)
- reserved instrument activities (which covers certain conveyancing transactions - for example preparing and lodging transfers or charges with the Land Registry - and preparing instruments relating to court proceedings, such as pleadings)
- probate activities, namely preparing papers on which to seek or challenge grant of probate or letters of administration
- notarial activities (for which you are authorised by the Master of the Faculties)
- the administration of oaths
However, there are circumstances set out below where authorisation may not be necessary.
Is authorisation needed?
"Not for profit body" exemption
The SRA acknowledges that there may well be situations where local authority legal teams fall within the definition of a not for profit body as set out in section 207 of the Legal Services Act 2007 (LSA 2007):
"not for profit body" means a body which, by or by virtue of its constitution or any enactment—
(a) is required (after payment of outgoings) to apply the whole of its income, and any capital which it expends, for charitable or public purposes, and
(b) is prohibited from directly or indirectly distributing amongst its members any part of its assets (otherwise than for charitable or public purposes).
Under the transitional provisions in section 23 LSA 2007 (which remain in force), a "not for profit body" is permitted to undertake reserved legal activities, without needing authorisation. The local authority legal team must satisfy itself that it falls within this exemption. In order to make this determination the local authority legal team may wish to seek guidance from the SRA, as well as independent legal advice as appropriate. It is recommended that a record is kept of the steps taken to reach that decision.
Section 15(4) LSA 2007
This states that:
P does not carry on an activity ("the relevant activity") which is a reserved legal activity by virtue of E carrying it on in E's capacity as an employee of P, unless the provision of relevant services to the public or a section of the public (with or without a view to profit) is part of P's business.
What is meant by "the public or a section of the public" is not defined in the LSA 2007 and there have been some differences in its interpretation. Whilst local authorities had taken the view that other local authorities and public bodies are not "the public or a section of the public", the SRA has taken a different approach and has published guidance which sets out its interpretation of the provisions.
The SRA has posed the question in its guidance: is an employee only providing the services to their employer or a person (individual or organisation) connected to their employer? The SRA has indicated that the term 'connected' organisation may be interpreted broadly and geographical proximity will not be determinative.
As such, if a local authority legal team does not fall within the "not for profit body" exemption, an alternative may be to consider whether they can demonstrate a 'connection' with the external bodies to whom they may wish to provide services.
The way forward
It is suggested that local authority legal teams wishing to undertake work for other organisations may wish to get in touch with the SRA to discuss their plans and consult on whether they need to be authorised to undertake that work.
This will involve the SRA looking at each organisation's situation – for example, who it wishes to work for, how any profits are distributed.
It is also important for each organisation to demonstrate that they have considered the risks around the offering of the services and how those can be mitigated – for example, indemnity insurance, governance arrangements – which would normally be looked at in some depth when an organisation applies for authorisation.
The SRA has confirmed that it will take a proportionate approach to this and will aim to be as flexible as possible within the constraints of the legislation.