Friday, 3 May 2013

An ethical ABS is to be applauded - but there remain grave reservations about the regime

I've written previously of my reservations about the Alternative Business Structure (ABS) regime, first proposed by Sir David Clementi in 2006 and a fact of legal life for nearly a year and a half now. Because they enable insurers and claims management companies to own and invest in law firms, ABSs are the Trojan horse in the battle against referral fees. It seems that no sooner were referral fees been banned, than we have been confronted with the means to get round the ban and perpetuate the very problem the Ministry of Justice sought to curtail.

But last week, a story on the excellent Legal Futures website gave me cause for cheer. The Community and Law Service (CALS) in Leicester has become the first not-for-profit organisation to set up an ABS. CALS has been authorised by the Solicitors Regulation Authority (SRA) to launch Castle Park Solicitors Community Interest Company. Its profits will be channelled back into continuing the work of the charity.

CALS gets there first

Ethics book
Image by JosephGilbert.org
CALS has beaten the application by Islington Law Centre to establish a not-for-profit ABS, which was made last November. Castle Park and CALS will not be sharing office space; from its premises, Castle Park will provide legal advice on family, immigration and employment law. Its intention is summed up by Glenda Terry, head of finance and administration: "We set it up because we wanted to have the facility to provide good-quality legal advice and representation mainly in the areas going out of scope of legal aid. We have pitched our fees competitively and hope it will be attractive to those on low to medium incomes."

This is a laudable aim, and one which will help to mitigate the effects of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO), which, for me, remains one of the most poorly conceived pieces of legislation to have made it onto the statute books in recent years. Legal aid has been decimated by LASPO, so too the ability of solicitors to bring meritorious claims for impecunious clients. The emphasis is on commodification and wholesaling, rather than considering and caring for an individual's needs.

Helen Grant misses the point

It is no use hearing Justice Minister Helen Grant acknowledge that LASPO's reforms to civil justice will bring "some pain initially and uncertainty for a while." The fact is that LASPO's provisions will have a dire effect on those who need legal advice, making it commercially impossible for many solicitors to represent them.

At least, though, CALS and Castle Park have used the ABS regime to counter LASPO. Here, utilising the ABS model ensures that paid-for services are introduced alongside traditional free services. Castle Park will thus generate income for CALS, which offers free housing and debt advice. In time, it is hoped that CALS will become less reliant on government funding and grants.

The ethical underpinning of both CALS and Castle Park is welcome, not least as insurers continue to push for ABS status so that they can, in effect, become law firms themselves. The SRA has already approved the creation of Admiral Law and BDE Law, joint ventures between insurance giant Admiral and law firms Lyons Davidson and Cordner Lewis. Ageas, which jointly underwrites Tesco's car insurance policies, has set up a venture with New Law, the PI firm based in Cardiff. Direct Line has got an application for an ABS in the pipeline, and the SRA says there are 104 similar applications currently being processed.

Not only do such ABSs allow insurers to refer claims to lawyers, but conflicts of interest are surely inevitable in this changing legal landscape. It is only a matter of time before an ABS law firm represents a client who is insured by the parent insurer.  It will be interesting, when this scenario comes to pass, to see what the Justice Minister and the SRA make of it.