ICAEW loses appeal over extending legal services regulatory work

ICAEW has failed in its attempt to extend its legal services regulatory work, after its appeal against the lord chancellor’s earlier refusal was turned down at a High Court judicial review

In 2017 the institute, which is an approved regulator of probate services, sought to widen its powers to include the other five reserved legal activities, including rights of audience and conduct of litigation.

The ICAEW’s application aimed to level the playing field between accountants and lawyers as currently accountants who offer tax services are at a disadvantage against lawyers as they do not have professional privilege and cannot conduct cases in court.

Despite support from the Legal Services Board (LSB) and the Competition and Markets Authority (CMA), the application was turned down by the then lord chancellor, David Lidington.

ICAEW took the case to judicial review, arguing that Lidington’s decision was unlawful and should be reversed. [R (on the application of the Institute of Chartered Accountants in England and Wales) and the Lord Chancellor and Secretary of State for Justice].

Lidington gave five reasons for his decision in a letter to ICAEW  under the headings governance and independence; the Lord Chief Justice's objections;  taxation services;  notarial services; and complementary activities.

Of these, the most important was the view that ICAEW’s proposed governance arrangements were not sufficiently independent of its representative functions, which the judicial review pointed out potentially applied to the whole of the application and the institute’s suitability to regulate all the reserved activities.

In challenging this, ICAEW claimed there had been an error which it variously described as ‘critical’, ‘serious’ and ‘fundamental’ in that the lord chancellor had applied his own test of independence which was different from, and more demanding than, the test which he was legally bound to apply according to the law.

However, the judges at judicial review did not agree. They pointed out that the activities of conducting litigation and exercising rights of audience in courts are considerably more complex and raise much more wide-ranging and challenging regulatory issues than preparing papers for probate.

They stated: ‘It is certainly not irrational to consider that more robust and transparent arrangements for protecting of regulatory independence are needed before a body which performs representative as well as regulatory functions is allowed to expand its remit from regulating only probate activities to regulate the conduct of litigation and exercise of rights of audience as well.’

They also rejected ICAEW’s claim that the lord chancellor  had ‘fundamentally misunderstood’ the ICAEW's proposed internal governance arrangements.

As regards the institute’s view that it would be responsible for ‘taxation services’, the judicial review said the regulatory boundary which the ICAEW was proposing to introduce was an entirely new one, intended to carve out a regulated area within certain reserved legal activities which the ICAEW had not previously been authorised to regulate at all, and therefore the lord chancellor was right to have queried this.

ICAEW also challenged the lord chancellor’s view that there is a material distinction between the services that accountancy firms already provide, even in the area of taxation, and additional reserved legal activities which could involve, for example, conducting complex litigation. 

The institute claimed that Lidington had failed to take into account when making his judgment that it was already the case that the additional reserved activities (except for notarial activities) were being carried out by three of the four biggest firms of accountants, albeit that those firms are licensed to undertake these activities by the Solicitors Regulation Authority; and, second, that there was some evidence of demand for accreditation by medium-sized accountancy firms.

However, the judicial review found both these points were specifically brought to the Lord Chancellor's attention before he made his decision, and there was no basis for concluding that he did not consider them and take them into account.

The sole point on which the judicial review felt ICAEW had made a case was in regard to the administration of oaths.

The judges said: ‘At all events the decision letter does not explain why the governance structure which was considered acceptable for the purpose of regulating probate activities, coupled with the enhanced monitoring regime suggested by the LSB, would not be adequate to protect the interests of consumers and the public if the remit of the proposed LSC [ICAEW’s legal services committee] were to be extended so as to include the administration of oaths (but not the other additional reserved legal activities).’

Otherwise, the ICAEW failed in the main part of its appeal.  The judicial review concluded: ‘Therefore, we consider that the appropriate course for us to take is to quash the decision in so far (but only in so far) as it concerned the administration of oaths and remit it to the Lord Chancellor for reconsideration. To that very limited extent, this application for judicial review succeeds; the decision otherwise stands.’

Commenting on the judgement Duncan Wiggetts, ICAEW executive director of professional standards, said it ‘undermines the important role of the LSB in determining applications by confirming that, irrespective of its recommendation, the lord chancellor can impose his own unspecified and undisclosed test to determine a regulator’s suitability. This makes a lottery of all future applications.’

Wiggetts pointed out that the LSB had made a very clear recommendation to the former lord chancellor, that ICAEW should be approved to regulate all five reserved legal services. 

‘The current lord chancellor will now need to re-take that decision, and we very much hope that he will seize the opportunity to extend choice in the market, in keeping with the spirit and intention of the Legal Services Act 2007. 

‘The decision to allow ICAEW to regulate probate in 2014 has already seen hundreds of ICAEW firms enter this market, widening access to justice for a greater number of consumers through these multi-disciplinary practices.

‘We are, however, disappointed and surprised that the court decided not to quash the rest of the lord chancellor’s decision relating to the remaining four reserved legal services,’ Wiggetts said. 

He went on to state: ‘The Legal Services Act was meant to open up the market for the provision of legal services to increase competition, leading to improvements in quality and helping drive down costs. 

It encouraged non-traditional legal services regulators to become part of the regulatory framework so that other professional services firms might enter the legal services market and our application was welcomed by the CMA.

‘The former Lord Chancellor’s decision, upheld in part by today’s judgment, has set that back.  The government now needs to consider whether changes are needed to the Act to ensure that it delivers the more competitive market it promised.’

The ICAEW has said it  will now consider all its options for moving forward.

R (on the application of the Institute of Chartered Accountants in England and Wales) and the Lord Chancellor and Secretary of State for Justice

Report by Pat Sweet

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