No.38 Disclosure of third party relationships

1. Introduction

1.1 Who should read this Guidance Statement?

This Guidance Statement is for solicitors and law practices.

1.2 What is the issue?

The purpose of this Guidance Statement is to outline the relevant considerations and the ethical obligations for solicitors and law practices to appropriately manage any personal or financial relationship which the solicitor or the practice has with counsel, experts or other third parties involved in the client’s matter, under the Australian Solicitors Conduct Rules 2012 (‘ASCR’) and the common law.

1.3 Status of this Guidance Statement

This Guidance Statement is issued by the Queensland Law Society (‘QLS’) Ethics and Practice Centre for the use and benefit of solicitors.

This Guidance Statement does not have any legislative or statutory effect. By having regard to the content of this Guidance Statement it may be easier for you to account for your actions if a complaint is later made to the Legal Services Commission.

This Guidance Statement is not legal advice, nor will it necessarily provide a defence to complaints of unsatisfactory professional conduct or professional misconduct. 

This Guidance Statement represents a standard of good practice and is endorsed by the QLS Ethics Committee. 

2. Ethical principles

ASCR Rules

4. Other fundamental duties 

4.1.1   Act in the best interests of a client in any matter in which the solicitor represents the client. 

4.1.4   Avoid any compromise to their integrity and professional independence.

12. Conflict concerning a solicitor's own interests 

12.1   A solicitor must not act for a client where there is a conflict between the duty to serve the best interests of a client and the interests of the solicitor or an associate of the solicitor, except as permitted by this rule.  

12.2   A solicitor must not exercise any undue influence intended to dispose the client to benefit the solicitor in excess of solicitor’s fair remuneration for legal services provided to client.

17. Independence - avoidance of personal bias 

17.1   A solicitor representing a client in a matter that is before the court must not act as the mere mouthpiece of the client or of the instructing solicitor (if any) and must exercise the forensic judgments called for during the case independently, after the appropriate consideration of the client’s and the instructing solicitor’s instructions where applicable. 

These Rules apply to all solicitors whether principals of a legal practice or those who have designated responsibility for a matter.

3. The potential for conflict concerning the solicitor’s own interests and the best interests of the client

The practice of law is collaborative in nature. There are many long-standing professional relationships between solicitors and counsel/experts/other third parties and these associations can often benefit clients where a good working relationship between the parties may improve efficiencies or communication and may instil some confidence in a client that their representatives work well together.

However, in respect of each of these professional relationships, a solicitor must at all times also continue to act in the best interests of the client, not act where there is a conflict concerning the solicitor’s own interests, and avoid any personal bias.

“Fiduciary duties, which apply to lawyer-client relationships dictate that lawyers must give undivided loyalty to clients, without being distracted by other interests including personal interests. Central to fostering loyalty is the prohibition on lawyers engaging with their clients in circumstances involving a conflict of interest and duty, namely where the lawyer’s own interests are not coincident with those of the client. Part and parcel of this proscription is the duty not to make an unauthorised profit out of the lawyer-client relationship.”^[1]

There is real potential for a solicitor to breach fundamental ethical obligations to act in the best interests of the client in circumstances where the solicitor has a personal or financial relationship with the third parties involved in a client’s matter.

The following examples (not inclusive) could give rise to a potential conflict concerning the solicitor’s own interests and the best interests of the client:

1. Where the solicitor is in a personal relationship with or is otherwise related to the counsel, experts or other third parties involved in the client’s matter;
2. Where the solicitor has a financial interest in the business of the expert or other third party who is involved in the client’s matter; or
3. Where the solicitor is receiving a benefit from, or paying a benefit to, the third   party/parties. 

4. Specific relationships with the potential for conflict

4.1 Barristers

Barristers are the third parties with whom solicitors will most likely engage on behalf of their clients and enjoy a special and trusted relationship.

“Barristers and solicitors have long performed complementary roles in the conduct of litigation.…. It is a symbiotic relationship – one in which each is dependent on the other and each benefit from the other’s contribution. Both barristers and solicitors are officers of the Court, committed to advancing their mutual clients’ interests, subject to an overriding duty to the Court.”^[2]

Solicitors will brief a barrister for a variety of reasons, including a prior working relationship, reputation, expertise or availability. Clients often defer to the recommendation of the solicitor for a suitable barrister. Because of that reliance by the client upon the solicitor’s guidance, the solicitor must disclose to their client any personal or financial relationship which they may have with counsel which goes beyond an arms-length business relationship. Regardless of any relationship with the barrister, a solicitor should not recommend counsel on any other basis than the solicitor believing the barrister is the best fit for the client, the matter and the circumstance surrounding it.

A solicitor should disclose any personal or financial relationship with Counsel briefed in a client’s matter that goes beyond the normal professional relationship that exists between colleagues in the same field. 

Bar Association of Queensland is of the view that a barrister is prohibited from having a financial interest in a law practice.^[3] 

4.2 Experts or third parties

As is the case with barristers, a solicitor should disclose to their client any personal or financial relationship which they have with an expert or third party who is engaged in a client’s matter.

An expert or third party should not be recommended by a solicitor for any other reason than the solicitor believing the expert is the best fit for the client, the matter and the circumstance surrounding it. If the solicitor will also receive a financial or other benefit as a consequence of the particular expert or third party being engaged, the solicitor should advise the client of this and seek the client’s informed consent.^[4]  

Failure to make appropriate disclosure can attract disciplinary action. For example:

• A solicitor’s failure to declare to his clients that certain third-party work on their files was being done by a company owned by the solicitor’s wife, was found to be a fundamental failure to discharge the duties of integrity and professional independence.^[5]
• A failure to disclose to personal injuries clients that the law firm had a financial interest in the third party firm engaged to calculate economic loss for those clients, was said by the court to constitute falling short of the standards of disclosure and advice that clients could expect. The firm utilised one of the partners as an in-house barrister, but did not disclose this to clients, nor explain the pros and cons of using in-house barristers as opposed to members of the independent bar.^[6]

In addition, experts owe a duty to the Court or Tribunal to give independent evidence and have an overriding obligation to assist the Court rather than to assist any particular party or person who is liable for the expert’s fees. Prudent practitioners will ensure that the client is aware of this and satisfy themselves that any expert engaged understands the obligations they hold.

5. Avoiding or mitigating the risk

5.1 Is fully informed consent sufficient?

The term ‘fully informed consent’ is used frequently but is dependent on the circumstances and the sophistication of the client, and so the concept is somewhat fluid. Just how far a practitioner goes to ensure fully informed consent is obtained will usually be a matter of risk management, but the courts have noted that there must be “full and frank disclosure to the client of all information known to the solicitor which the client should know”.^[7]

If the client is made comprehensively aware of any and all personal or financial relationship which the solicitor or the practice has with counsel, experts or other third parties involved in the client’s matter, it may be possible for the solicitor or law practice to continue to use that party in the client’s matter. However, the steps which must be taken by the solicitor to discharge this responsibility remain very onerous.

The Courts have stated that “[the disclosure] must be a conscientious disclosure of all material circumstances, and everything known to him relating to the proposed transaction which might influence the conduct of the client or anybody from whom he might seek advice. To disclose less than all that is material may positively mislead. Thus, for a solicitor to merely disclose that he has an interest, without identifying the interest, may serve only to mislead the client into enhanced confidence that the solicitor will be in a position to better protect client interest.”^[8]

The Queensland Civil and Administrative Tribunal provided some guidance in  Legal Services Commissioner v Redmond [2015] QCAT 212, [18] a case in which the practitioner failed to properly disclose that he was the director of an economics consulting firm to his client, as well as his firm’s relationship with a brokerage company. 

In the case of Legal Services Commissioner v Reid (No 3) [2017] QCAT 471, the tribunal noted:

• a fiduciary should show undivided loyalty and not use their position, knowledge or opportunity to serve interests without fully informed consent;^[9]
• identify all relevant interests so the client can make a fully informed decision about whether the solicitor can continue to act for them.^[10]
• whether fully informed consent has been given will depend on what services are required of a fiduciary and what the client actually wants or is willing to accept.^[11]

The Tribunal was unequivocal when considering financial relationships between lawyer and third party provider. As noted by Gino Dal Pont, “if by reason of acting for a client in a particular matter, the lawyer (or an associate) stands to gain a benefit directly or indirectly additional to reasonable professional fees, this benefit must either be disclosed, or the lawyer must cease to represent the client due to conflicting interests.”^[12]

It is recommended that practitioners obtain that fully informed consent in writing or have it clearly recorded in some other way due to the difficulty in demonstrating that they have done so if they do not hold such a record on their file. Practitioners should also consider whether the client should be advised to seek independent legal advice, especially where the client is not a sophisticated client.^[13]

5.2 Other strategies

Ideally, discussions about the use of third party service providers – barristers, medical experts, accountants, actuaries etc. – should be a part of the client onboarding process. However, such discussions are unlikely to fulfil disclosure obligations on their own, and the need for third party service providers may not be obvious at the outset or change as the matter progresses. 

It is possible to incorporate some of this disclosure in the retainer with the client, but any unusual clause (such as acknowledging a financial relationship with a given expert) should be specifically brought to the client’s attention, and even then this is unlikely to fully discharge the disclosure obligations; certainly, a client simply signing the client agreement will not of itself constitute informed written consent.

Prudent practitioners will address any particular relationship with a barrister, expert or other third party provider by way of a separate written disclosure and a written consent from the client; in some cases independent legal advice should be sought by the client. This disclosure should ideally include:

• details of any personal relationship between the solicitor and the third party;
• details of any financial relationship between the solicitor and the third party;
• details as to why the solicitor is recommending the use of the third party;
• advice to the client that they do not have to accept the solicitor’s recommendation of the third party.

6. More Information

Solicitors are also referred to the Queensland Law Society, The Australian Solicitors Conduct Rules 2012 in Practice: A Commentary for Australian Legal Practitioners, Queensland Law Society (2014).

For further assistance, including difficulties you may be experiencing as either a supervisor or as a practitioner who is being supervised, please contact an Ethics Solicitor in the QLS Ethics and Practice Centre on 07 3842 5843 or ethics@qls.com.au or a QLS Senior Counsellor.^[14]

^[1] Gino Dal Pont, Lawyers’ Professional Responsibility (Thomson Reuters, 7th ed, 2021) [6.05].  

^[2] Justice Margaret Wilson, ‘Barrister and solicitor: a symbiotic relationship in the interest of the client’ (Speech, Bar Practice Course 62, 20 February 2014) 4.

^[3] Bar Association of Queensland Barristers’ Conduct Rules 2018, r16.

^[4] For further information in relation to the giving and receiving of referral fees, see QLS Guidance Statements 3 and 4.

^[5] Legal Services Commissioner v Sullivan [2018] QCAT 423.