Accountants and regulation of legal services

The Divisional Court has dismissed the Institute of Chartered Accountants’ judicial review of the Lord Chancellor’s refusal of their application to become an approved regulator of legal services in addition to probate. Charles Streeten sets out why.

Leggatt LJ and Andrews J, sitting as a Divisional Court, have handed down judgment in R (ICAEW) v Lord Chancellor [2019] EWHC 461 (Admin) dismissing a challenge by the Institute of Chartered Accountants of England and Wales (“ICAEW”) to the Lord Chancellor’s decision, contrary to the recommendation of the Legal Services Board (“LSB”), to reject their application to become an approved regulator and licensing authority under the Legal Services Act 2007.

Over the course of the last 25 years the ICAEW has become a designated regulator under various statutes in the areas of audit, insolvency and investment business, subject to oversight by the Financial Reporting Council, the Insolvency Service and the Financial Conduct Authority. 

A major change brought about by the 2007 Act was the liberalisation of the business entities through which legal services can be delivered. The Act permitted, for the first time, the setting up of multi-disciplinary practices between lawyers and other professionals in what are commonly known as alternative business structures (“ABSs”).

In 2014, the ICAEW was designated under the 2007 Act as an approved regulator and licensing authority for the reserved legal activity of probate.

In 2016 it applied to become an approved regulator and licensing authority under the Act for the other five reserved legal activities; namely (a) the exercise of a right of audience; (b) the conduct of litigation; (c) reserved instrument activities; (d) probate activities; (e) notarial activities; and (f) the administration of oaths.

The LSB recommended that the Lord Chancellor approve the ICAEW’s application and designate it as an approved regulator and licensing authority under the 2007 Act.

The Lord Chancellor departed from that recommendation and refused the application. In particular, he stated that he did not consider that the ICAEW’s proposed governance arrangements would either be, or be seen to be, sufficiently independent of its representative functions. 

The ICAEW brought a claim for judicial review of that decision. The primary ground on which it challenged the Lord Chancellor’s decision, was that he had erred in law. The ICAEW argues that in concluding that its governance arrangements were insufficiently independent of its representative functions, the Lord Chancellor applied a test of independence which was different from, and more demanding than, the test which, on the ICAEW’s case, he was legally bound to apply. Specifically, the ICAEW contended that, on the proper interpretation of the Act, the sole standard of regulatory independence which it is permissible for the Lord Chancellor to apply in assessing an applicant’s proposed governance arrangements is whether those arrangements comply with the Internal Governance Rules made by the LSB pursuant to section 30 of the Act.

Rejecting that argument, the court held there is nothing in the Act which states that, in deciding whether to make an order designating an applicant as an approved regulator, the Lord Chancellor must use the LSB’s rules as the sole benchmark of regulatory independence and is bound to accept that the applicant’s regulatory functions are sufficiently independent of its representative functions provided he is satisfied that its proposed governance arrangements comply with the LSB’s rules.

Whilst the court recognised the force of the ICAEW’s argument based on consistency, that argument did not justify reading into the Act a particular and precise requirement which Parliament had seen fit not to specify.  As the Court held,

“The Act is a detailed and intricately crafted piece of legislation. It prescribes three stages to the process of designation as an approved regulator, of which approval by the LSB of the applicant’s proposed governance arrangements and the making of a recommendation by the LSB is only the first. A decision by the Lord Chancellor to make, or refuse to make, an order in accordance with the LSB’s recommendation, and the approval of Parliament for any such order, are further and separate stages of the process. If the legislative intention had been to oblige the Lord Chancellor – let alone Parliament – to apply a specific set of rules in making his decision, or to limit his consideration to whether the LSB has correctly applied its own rules, then it is reasonable to expect that the Act would have said so expressly. In circumstances where it does not, [there is] no justification for imputing to Parliament an intention to impose such an obligation sub silentio.”

In addition, the ICAEW raised a number of arguments challenging the Lord Chancellor’s reasoning in relation to specific reserved legal activities.

All were rejected other than in relation to the administration of oaths, in relation to which the court found the Lord Chancellor’s reasoning was insufficient.

In relation to rights of audience, the conduct of litigation, reserved instrument activities, and notarial activities the court dismissed the claim for judicial review.

With regard to notarial activities the court held that,

“In opposing the ICAEW’s application, the notaries’ representative bodies had not merely expressed their concerns (shared by the Master of the Faculties who is himself an approved regulator) that allowing the ICAEW to regulate the provision of notarial services would give rise to a risk of the independence of English and Welsh notarial acts being questioned in other jurisdictions. They had provided evidence in support of their concerns, including the letter from the President of the International Union of Notaries and the evidence of the Spanish decision mentioned earlier (see paragraph 36 above). The ICAEW had provided no contrary evidence of its own. Nor did the LSB point to any evidence to support its assessment of the risks as “low”. That evaluation appears to have been based on nothing more than an assumption or hope that the continued involvement of the Master of the Faculties as the approved regulator of individual notaries would be sufficient to avoid any adverse impact on the status of English and Welsh notarial acts in other jurisdictions.

"In these circumstances the Lord Chancellor was entitled to take the view that the arguments and evidence adduced by the professional bodies, which clearly raised a matter of public interest, were sufficiently cogent to put an onus on the ICAEW to rebut them. He was also entitled to take the view that the ICAEW had not provided sufficient evidence or analysis to do so. The Lord Chancellor explained in clear terms that this was his view, and there was nothing deficient in his explanation or reasoning.”

This decision reflected the submissions made on behalf of the Notaries Society, the professional body that represents the interests of the majority of Notaries Public in England and Wales, which appeared as an interested party. Exceptionally, the court awarded the Notaries Society its costs of attending the final hearing.

Charles Streeten is a barrister at Francis Taylor Building. He appeared for the Notaries Society instructed by Barry Holland and Keith McKinney of Aaron and Partners.