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Ethics: Legal firm structures under the Legal Profession Act

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Cite as: (2005) 79(9) LIJ, p. 78

The Legal Profession Act 2004, which is expected to be introduced by 1 October, provides for the establishment of multi-disciplinary practices (MDPs) and incorporated legal practices (ILPs).

These are legal firm structures that are relatively unknown in Australian law as they allow non-practitioners to be principals of a legal practice. The issues that these structures may create can only be foreseen, as there is no history to examine.

The creation of an MDP or an ILP will have serious ethical and professional conduct ramifications. The fact of non-lawyers participating in the management and functioning of a legal practice creates significant difficulties for the legal practitioner in managing duties to clients.

Of concern are, most obviously, the practitioner’s duties to maintain client confidentiality and also to use all knowledge held by the practitioner for the client’s benefit. There will be circumstances where confidential information held by the practitioner could leak to a non-practitioner partner or director, thus breaching the practitioner’s duty.

There may also be circumstances where a non-practitioner partner or director gains confidential information that would be relevant to a practitioner’s client’s matters, but the practitioner cannot use it because it is confidential to another client of the firm. There is then a conflict of duties for the practitioner.

Practitioners should also be aware of Part 2.7.11 of the Legal Profession Act which provides that the conduct of another (non-practitioner) director or employee can constitute either unsatisfactory conduct or professional misconduct by the legal practitioner, leading to disciplinary proceedings against the practitioner.

Practitioners in an ILP which has shareholders have to balance what may be competing duties of confidentiality to clients and their corporate reporting duties to shareholders. While confidentiality of the clients’ affairs must be maintained, shareholders want to know how the firm is progressing and if there are prospects of earnings from the conduct of the clients’ files. Pressure by shareholders may also create a conflict between a practitioner’s own interests and those of a client, as the practitioner is wearing both a director’s hat and that of a solicitor.

The attraction of these structures for practitioners is the ability to have complementary expertise and capital investment from outside the narrow confines of legal practice.

This could enable firms to grow in ways never seen before, with a firm providing a range of services in house that would previously have been referred externally, and attracting investors to provide capital in non-traditional ways to help the firm grow.

Practitioners adopting these structures will have to be supremely vigilant in maintaining their ethical duties and professional responsibilities.

JAMES LEACH is former LIV Ethics manager and secretary of the LIV Ethics Committee.

Explaining ILPs and MDPs

Incorporated legal practices (ILPs)
An ILP is a corporation that is permitted to engage in legal practice and provide non-legal services. It may provide any service or undertake any business except an investment scheme or, if the Regulations prohibit it, a form of business.
An ILP must have at least one legal practitioner director. The legal practitioner director is responsible for the conduct of any other director of the corporation and for the provision of legal services by the practice.
The legal practitioner director is responsible for the conduct and suitability of the non-legal practitioner directors in the provision of legal services.

Multi-disciplinary partnerships (MDPs)
MDPs are partnerships between one or more legal practitioners and one or more persons who are not Australian legal practitioners. The legal practitioner partners are responsible for the provision of legal services and for the professional conduct of the non-legal practitioner partners. Each legal practitioner partner is responsible for the legal services provided by the MDP.
A MDP may provide legal services and undertake business other than the provision of legal services.


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