The SRA Principles 2011 and the Code of Conduct 2011 are the main areas of the SRA Handbook relevant to those practising in-house. Tracey Calvert and Bronwen Still provide an overview of these topics from their book Regulation and In-House Lawyers.
In response to the Legal Services Act 2007, and in order to meet the expectations of the Legal Services Board, the Solicitors Regulation Authority (SRA) introduced a new system of regulation. This was outlined in the SRA Handbook, first published in October 2011. These regulations apply to all individuals regulated by the SRA - including those working for non-solicitor employers.
The SRA Handbook sets out the standards and requirements expected of the regulated community for the benefit of the clients they serve and in the public interest. In order to ensure compliance, all members of the profession need to reflect on their practice and approach in light of the regulations, but many in-house practitioners remain unaware of their obligations.
In the first of a series of articles on compliance, Tracey Calvert and Bronwen Still provide an overview of the SRA Principles and Code of Conduct, taken from their book Regulation and In-House Lawyers.
The SRA Principles 2011 and the Code of Conduct 2011 (the Code) are the main areas of the SRA Handbook which are relevant to those practising in-house. They set out the fundamental behaviours required of the individual practising lawyer and govern how the lawyer conducts his or her practice, whether in private practice or in-house. While all the principles apply to those employed in-house, the outcomes in the Code have variable application.
The principles preface the Handbook to make clear that they apply at all times and in all situations, including behaviour outside practice. They should be used to help with the interpretation of all other rules and outcomes in the Handbook. They go to the root of professionalism and define the values associated with it. They should guide the actions of all those employed in-house in exactly the same way as they apply to those engaged in private practice.
Six of the principles are familiar and formed the core duties in the Code of Conduct 2007.
1. uphold the rule of law and the proper administration of justice
2. act with integrity
3. not allow your independence to be compromised
4. act in the best interests of each client
5. provide a proper standard of service to your clients, and
6. behave in a way that maintains the trust the public places in you and in the provision of legal services.
The principle dealing with independence can create certain tensions in relation to in-house practice because of the nature of the relationship with the employer client. In private practice, it’s easier for the lawyer to be totally objective with the client about the parameters of the relationship and what the lawyer can and cannot do. Most employers will respect their lawyer’s need to comply with regulatory obligations and to have the independence to be able to draw a line in the sand. However, there are some who will push the boundaries, and the in-house lawyer must be clear about what he or she cannot do, particularly in relation to his or her duty to the court. Areas of tension could arise if, for example, an employer wanted their lawyers to act in conflict situations or to act for those that they were not permitted to represent under the Practice Framework Rules.
The Handbook makes clear that where two or more principles come into conflict, the one that takes precedence is the one which best serves the public interest in the particular circumstances, especially the public interest in the proper administration of justice. This has further amplification in the outcomes dealing with the lawyer’s duties to the court where, as a lawyer, you must inform your client if your duties to the court outweigh your obligations to them. This is most likely to happen if your client, or the individual representing your client, wants to mislead the court for their own benefit.
There are four new principles which emphasise other issues that the SRA regards as fundamentally important to all aspects of practice. You must:
7. comply with your legal and regulatory obligations and deal with your regulators and ombudsmen in an open, timely and co-operative manner
8. run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles
9. run your business or carry out your role in the business in a way that encourages equality of opportunity and respect for diversity, and
10. protect client money and assets.
Principle 7 heralds a new era in which the SRA wants to have a more open and honest relationship with the firms and individuals it regulates. It also highlights the importance now attached to regulatory compliance, viewed as essential to support client services. In relation to private practice, regulatory compliance is a fundamental requirement for regulated firms if they wish to remain authorised. Principle 7 is complemented elsewhere in the Handbook by a requirement for more detailed reporting of information about levels of compliance by firms. This is to help the SRA assess the level of risk each firm presents to its clients and the public and to target its resources on those which present high risk.
In relation to in-house practice, this principle is still relevant, although the SRA has no regulatory control over the employing entity. Nonetheless, regulatory compliance is expected of all those practising in-house and any individual dealings with the SRA must comply with this principle. This means that any information required in relation to, for example, a practising certificate application, must be provided promptly and in an open and frank manner.
Principle 8 is also primarily focused on private practice as the SRA wants the firms it regulates to take a more ‘corporate’ approach to the way they are governed and managed. It sees effective management as key to providing a good service to clients. Many in-house legal teams will already work within a well-defined governance structure but the principle will have an effect on the way the legal team is managed and how it carries out its work. Managers of legal teams will need to ensure adequate systems are in place to achieve regulatory compliance and those within the teams will need to take personal responsibility for ensuring they are aware of the systems and follow them.
Principles 9 and 10 are not new but have been given elevated status by the SRA because of their importance, particularly in promoting and protecting the interests of consumers. Principle 9, dealing with equality and diversity, applies to in-house practice and, again, those managing in-house legal teams have particular responsibility for ensuring this principle is met. With larger employers it’s likely that policies which meet the relevant legislation are embedded. Protecting client money and assets have limited significance to in-house practice as few will operate a client account. For those that do, adherence to the SRA Accounts Rules should ensure compliance.
The Code governs a lawyer’s relationship with the client, the court, the SRA and third parties. It sets out standards which must be met whether you are employed in-house or in private practice.
The Code goes to the heart of the SRA’s outcomes-focused approach to regulation, and detailed rules have been replaced entirely by outcomes. Those that deal with client care, in particular, are pitched at a high level of generality and are intended to give greater flexibility to lawyers and firms to make their own decisions about the sort of information they need to give their clients and the relationship they have with them. This means that those who act for sophisticated users of legal services have the ability to deal with their clients in a way which is different from the approach needed by those who act for individuals who rarely use legal services. The use of high level outcomes should also have more relevance to in-house practice than the previous detailed rules which imposed a rigid ‘tick box’ approach to the relationship with the employer client which was largely inappropriate.
The use of outcomes, although giving greater flexibility, does place greater responsibility on individuals and firms to demonstrate how they have achieved compliance and to show what steps they have taken to identify and deal with risks of non-compliance. Those in private practice and those employed by organisations such as law centres, are likely to demonstrate compliance primarily through their client care letters and terms of business.
For most working in-house, the use of formal terms of business will not usually be an option and the relationship with the client, usually the employer, will be governed by their contract of employment. Nonetheless, this does not negate the fact that lawyers should get clear instructions from their employers about all aspects of the work they undertake and have a proper dialogue about how it’s to be achieved.
Should there be a dispute over whether a lawyer has met the outcomes, documented evidence of the instructions and how they were met would assist the lawyer in exactly the same way as in private practice.
There are some tensions which the employer/employee relationship will create and may have an impact on an individual’s ability to meet the outcomes. This may be, for example, because the employer wants an employee to take on legal work in a field that the individual does not feel qualified to act. Any refusal to carry out that work may have adverse consequences for the employee’s future career. On the other hand, the employee is under an obligation to meet an outcome which requires that ‘you have the resources, skills and procedures to carry out your clients’ instructions.’
The Code is divided into five sections and each section is further subdivided into chapters. The sections and chapters are structured as follows:
Section 1. You and your client
Section 2. You and your business
Section 3. You and your regulator
Section 4. You and others
Section 5. Application, waivers and interpretation
The defining feature of the Code is the use of outcomes in the place of rules. The outcomes are the mandatory requirements which must be achieved. They were undoubtedly drafted mainly with private practice in mind and to allow firms to have a more ‘grown up’ relationship with their clients by removing the ‘one size fits all’ prescription which characterised the 2007 Code. The outcomes must always be read in the light of the principles (see above) which apply throughout the Handbook. The outcomes are a manifestation of how the principles apply in the different contexts in each chapter of the Code.
The outcomes are supported by indicative behaviours (IBs) which are a form of guidance and which set out the type of behaviours which are likely to demonstrate achievement of the outcomes and also those behaviours which would tend to show that the outcomes have not been achieved. At this stage, none has been drafted which specifically refer to in-house practice. It is possible this may change following the review of in-house practice which the SRA is currently engaged in.
The indicative behaviours are not mandatory and the outcomes can be achieved without reference to them but they are intended, nonetheless, to give some guidelines for firms and individuals to work within. The SRA has warned, however, against ‘unthinking compliance’ as it wants firms to move away from the previous ‘tick box’ mentality when dealing with clients.
Most of the flexibility which the outcomes bring is centred on the client care chapter and allows firms to decide on the most appropriate way to deal with their clients in terms of the information they need to give them. However, many of the other chapters have outcomes which mirror the former rules and remain prescriptive in how they apply. This is because of the nature of the subject matter. For example, the duty of confidentiality must apply strictly in accordance with the law, as must the duties which a solicitor owes to the court. There’s no room for a more relaxed approach in these cases.
The 2011 Code contains much of the material which was covered by the 2007 Code. Client care, conflicts of interest, undertakings, your duty to the court, etc. all appear in the new chapters. To an extent, part of the challenge of the Code lies in becoming familiar with where the various subject matters are now located.
Some material has, however, been removed and appears elsewhere in the Handbook. Of particular relevance to in-house practice is that all the provisions dealing with how individuals can practise (formerly rules 12 and 13 of the 2007 Code and before that the Employed Solicitors Code 1990) have moved to the SRA Practice Framework Rules. These rules contain all the important detail of who you can act for as an in-house lawyer and this issue is covered in Chapter 7.
One change to the Code intended to be helpful to in-house lawyers is that, for the first time, there is a section at the end of each chapter which explains which outcomes will apply to them. These outcomes fall into three separate categories:
The significance of having outcomes which apply specifically to in-house practice is that there’s a clearer obligation to demonstrate compliance. With the 2007 Code, it might have been possible to argue that a particular rule was inapplicable to in-house practice. With the new Code, some outcomes are clearly identified as inapplicable and the others apply, if appropriate. For example, the rules dealing with conflicts of interests are identified as applicable but, in relation to ‘client conflicts’, will only actually apply where two or more bodies or individuals are represented in a matter.
Despite this demarcation in the Code there are still many outcomes which have been identified as potentially applicable to in-house practice where, in reality, the number of in-house lawyers who will be affected is increasingly small. Examples are: separate businesses, referral fees, commissions and fee sharing.