2001: No. 1 July-August Supplement
Consultation on multi-disciplinary practice
Questions for B.C. lawyers in this consultation
Accompanying this electronic version of the Supplement are draft rules on multi-disciplinary practice, which would amend the Law Society Rules and the Professional Conduct Handbook. These have been prepared by the MDP Task Force and published to the profession for comment.
The Benchers welcome comments on all aspects of multi-disciplinary practice, including the following questions:
Please send your comments by September 25, 2001 to:
Accompanying this Supplement:
- "Why Multi-Disciplinary Practices Should be Controlled by Lawyers" by Jack Giles, Q.C., The Advocate, September, 2000
- "The Changing Nature of the Practice of Law: A Reply to Mr. Giles on the Issue of Multi-disciplinary Practice" by President Richard Margetts, Q.C., The Advocate, January, 2001
- "Response to the President on Multi-disciplinary Practice" by Jack Giles, Q.C., The Advocate, March, 2001
- "You Don't Need AWeatherman: Another Word in the Multi-Disciplinary Debate" by President Richard Margetts, Q.C., The Advocate, July, 2001
- American Bar Association report on multi-disciplinary practice at www.abanet.org/cpr/mdpfinalrep2000.html
- "Multi-Disciplinary Practices and Partnerships: Prospects, Problems, and Policy Options" by Kent Roach and Edward M. Iacobucci, Canadian Bar Review, February, 2000. (This article and resolutions of the CBA National are unavailable online. Lawyers can receive copies by contacting Joanne Hudder at the Law Society office by email at email@example.com or by telephone at (604) 605-5316 or toll-free in B.C. at 1-800-903-5300.)
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In October, 1999 the Benchers agreed in principle to relax the prohibition on fee splitting to permit multi-disciplinary practice (MDP)*, subject to the adoption of a regulatory scheme that protects the core values of the legal profession, such as privilege, confidentiality and professional independence.
* In this Supplement, "multi-disciplinary practice" or "MDP" refers to the activity of multi-disciplinary practice in general and "a multi-disciplinary practice" or "an MDP" refers to an entity engaged in multi-disciplinary practice. For a definition of multi-disciplinary practice, see the draft rules on the Law Society website.
The Benchers subsequently took several steps to assess the feasibility of permitting multi-disciplinary practice in British Columbia (see the March-April and August-September, 2000 issues of the Benchers' Bulletin for background).
Since the Benchers' decision of October, 1999, ideas about multi-disciplinary practice have evolved in British Columbia and in other jurisdictions. The American Bar Association has declined to consider changes that would permit multi-disciplinary practice and the law societies in Alberta and Ontario have determined to permit it only in a limited form. A lively debate about the wisdom of permitting multi-disciplinary practice has taken place in The Advocate over the past year, and a number of Benchers have concluded that the October, 1999 Benchers' decision ought to be reconsidered.
Multi-disciplinary practice has the potential to offer B.C. consumers the convenience of one-stop shopping for professional services and to offer lawyers fair opportunity in an increasingly competitive marketplace by sharing their overhead costs, sharing profits from a variety of services and doing more cross-referral of services.
Multi-disciplinary practice, however, also has the potential to promote the unauthorized practice of law, compromise the independence of the legal profession and erode the principles governing privilege, confidentiality, conflicts and other core values of the profession. If the important principles underlying these issues cannot be preserved in a multi-disciplinary environment, both the profession and the public will lose.
Throughout the first half of 2000, the MDP Task Force - comprised of Benchers Peter Ramsay, Q.C., Chair, William Sullivan, Q.C. and Ross Tunnicliffe and assisted by staff lawyers Jeff Hoskins and Jack Olsen - presented further options to the Benchers who made provisional decisions on the principles to protect core values that should underlie a regulatory regime. The Benchers made these provisional decisions on the principles through a series of straw (non-binding) votes, after discussion of the various alternatives. Based on those principles, the MDP Task Force drafted rules and introduced them to the Benchers in December, 2000. The Benchers asked for certain changes in the draft rules, and these were presented at the February, 2001 meeting.
While the Benchers to date have decided on principles to guide the development of draft rules for discussion and comment, they have made no final decisions on any aspect of multi-disciplinary practice, including whether it should be permitted at all.
In the course of considering the principles to be followed if MDPs are to be permitted, the Task Force asked for the assistance of concerned members of the profession in April, 2000, and received comments from a number. Before moving forward on this issue, the Benchers would again like to consult the profession and invite comments on multi-disciplinary practice and the draft rules (see page 1).
This Benchers' Bulletin Supplement summarizes the major issues the Benchers have considered on multi-disciplinary practice, the rationale for each decision and some of the alternatives that were considered but rejected.
Accompanying the electronic version of this Supplement are the draft rules on multi-disciplinary practice, which would amend the Law Society Rules and the Professional Conduct Handbook.
A series of articles on multi-disciplinary practice was recently published in the Advocate: "Why Multi-Disciplinary Practices Should be Controlled by Lawyers" by Jack Giles, Q.C. in the September, 2000 issue; "The Changing Nature of the Practice of Law: A Reply to Mr. Giles on the Issue of Multi-disciplinary Practice" by President Richard Margetts, Q.C. in the January, 2001 issue and "Response to the President on Multi-disciplinary Practice" by Jack Giles, Q.C. in the March, 2001 issue. In the most recent (July, 2001) issue of the Advocate, you will find another in this series: "You Don't Need A Weatherman: Another Word in the Multi-Disciplinary Debate" by President Richard Margetts, Q.C.
Lawyers will further wish to review the American Bar Association report on multi-disciplinary practice (www.abanet.org/cpr/mdpfinalrep2000.html) and the article "Multi-Disciplinary Practices and Partnerships: Prospects, Problems, and Policy Options," by Kent Roach and Edward M. Iacobucci in the February, 2000 Canadian Bar Review. A hard copy of this latter article and resolutions of the CBA National are available by contacting Joanne Hudder at the Law Society office, by email at firstname.lastname@example.org or by telephone at (604) 605-5316 (or toll-free in B.C. at 1-800-903-5300).
Major issues on multi-disciplinary practice considered by the Benchers
Would the Law Society regulate lawyers or MDPs?
The failure of non-lawyer members of an MDP to adhere to the Law Society Rules or Professional Conduct Handbook would go unchecked unless responsibility for those violations can be placed either on the MDP itself or on the lawyers in the MDP.
The Benchers concluded that the only realistic choice is to regulate an MDP indirectly through the lawyers that participate in the entity. The Law Society currently regulates law firms in this way. Lawyers who practise in an MDP would be obliged to enter into formal contracts with their non-lawyer partners to ensure the core values of the legal profession are respected.
Who would control the MDP?
The Benchers considered two options respecting the control of MDPs.
Option 1 would prevent lawyers from participating in an MDP unless lawyers comprise a majority of the MDP's partners. This option would, for example, prevent the big five accounting firms from providing legal services as part of a multi-disciplinary practice.
Option 2 would place no restrictions on control of an MDP and would permit lawyers to comprise a minority of the MDP's partners, provided that the delivery of legal services remains under lawyer control.
Both Option 1 and Option 2 are arguably consistent with resolutions of the Canadian Bar Association Council passed at the 2000 Annual Meeting in Halifax and the Mid-Winter meeting in February, 2001 in Mont St. Anne. Those resolutions state in part:
A lawyer or lawyers should only be permitted to practise in an MDP if the lawyer or lawyers have effective control, as defined below, over the practice and business of the MDP.
"Effective control" means that the lawyer or lawyers in an MDP can, by way of a partnership agreement or other contractual arrangement governing the relationship of the lawyer(s) and the non-lawyer(s) within the MDP, ensure continuing compliance with the core values, ethical and statutory obligations, standards and rules of professional conduct of the legal profession.
In a straw vote in March, 2000, a majority of the Benchers preferred Option 2. Proponents of Option 2 maintain that control of the delivery of legal services is independent of actual voting control of the MDP, and will depend on what rules the MDP is obligated to follow with respect to the delivery of legal services. If the delivery of legal services by the MDP is governed by rules that the MDP is obliged to honour, control over the delivery of legal services rests with the Law Society and lawyers. Under this view, the absence of a requirement that lawyers comprise a majority of partners in the MDP does not determine whether the core values of the legal profession can be preserved.
Proponents of Option 1 take the position that, unless lawyers comprise the majority of the partners in the MDP, the core values of the profession are placed in jeopardy. They argue that no agreement between the lawyer and non-lawyer partners in the MDP can ensure that lawyers are not subjected to pressures for financial and institutional reasons to compromise their professional obligations in an MDP environment. Such pressures cannot effectively be resisted unless lawyers control the MDP.
Those who favour Option 2 maintain that a requirement that lawyers control the MDP is not responsive to consumer demand for services other than legal services from an MDP and will not solve the critical issues raised by the prospect of multi-disciplinary practice, including issues of confidentiality, privilege, conflicting ethical duties and professional independence. They argue that resolution of these issues must be addressed independently and cannot be solved solely by requiring lawyer control of MDPs.
The requirement that a majority of partners in the MDP be lawyers is no assurance in itself that the core values will be protected. It should not be assumed the lawyers would always vote in such a way as to exercise their majority control. Moreover, a requirement that lawyers control MDPs may promote similar requirements by other professions who may participate in MDPs. Such competing demands could preclude multi-disciplinary practice altogether, at least among professionals who continue to assert the need for control of an MDP by their own profession.
Who could participate in an MDP?
In a straw vote, most Benchers favoured permitting lawyers to associate in partnership, not only with other self-regulating professionals, but with non-lawyers in other businesses as well. Under this approach, a lawyer could enter into partnership with a person who works in media relations, labour relations or entertainment management, for example, as well as with self-regulating professionals such as chartered accountants, psychologists, architects and engineers. Most Benchers who voted preferred not to restrict lawyers to forming partnerships only with other self-regulating professionals. A restrictive approach may preclude sensible and economic arrangements between lawyers and members of other occupations that may serve the public well.
The Benchers found less favour with a completely open ownership model that would allow non-lawyers who are not active partners in the MDP to contribute capital and share in profits through a corporate or other arrangement. This model would be a significant departure from the partnership structure that is characteristic of the practice of lawyers and other professionals. It is questionable whether the professional independence of lawyers could be preserved under this model since non-lawyers whose only interest in the MDP is a financial one might have a significant influence on its operations.
What services might an MDP provide?
The Benchers were inclined to place no restrictions on the services an MDP might provide.
Most Benchers were not attracted to a model of MDP - such as the one permitted in Ontario - that restricts the scope of services to those directly related to the practice of law. The Ontario approach permits a law firm to make partners of non-lawyers in the firm, such as managers, accountants and patent agents. However, it does not permit the firm to take advantage of the possible benefits of a more open approach that may also benefit clients.
A client's problems can cut across professional boundaries, and it is the potential convenience, lower cost and better and more comprehensive advice that may attract consumers to a multi-disciplinary practice. By way of example, a lawyer, a social worker and a financial advisor might form an MDP to provide legal and other services in connection with counselling older clients on estate planning, nursing home care and representation agreements.
Regulatory options for multi-disciplinary practices
In designing regulatory options for MDPs, the Benchers considered what regulatory regime could best preserve the core values of the profession, including the duties of client confidentiality and loyalty and lawyer independence. The Benchers thought that the best option would be to pass rules that lawyers must follow if they wish to practise in an MDP. The non-lawyer members of an MDP would have to facilitate lawyers' compliance if they wished to have lawyers in the MDP.
Failure to follow the MDP rules would have the same disciplinary consequences for a lawyer as a failure to follow other provisions of the Law Society Rules or the Professional Conduct Handbook. Lawyers would have to certify to the Law Society that they have complied with the MDP rules before commencing practice in an MDP, and certify their compliance annually thereafter.
This approach has the advantage of simplicity. The Law Society need not take any active role in assessing the suitability of the lawyers in the MDP to practise in a multi-disciplinary environment. This minimizes the cost of regulation and is the least intrusive regulatory arrangement for lawyers.
A formal licensing scheme was another option considered, but not preferred, by the Benchers. Under such a scheme, lawyers who wish to practise in an MDP would first have to convince the Law Society that they can comply with requirements designed by the Society to maintain the core values of the profession in a multi-disciplinary environment. Neither did the Benchers favour a model that would involve the licensing of MDPs only on the Law Society being satisfied that the MDP has designed its own solutions to preserve the core values of the profession and that those solutions were acceptable.
A licensing scheme for lawyers practising in MDPs would have some advantages if there were detailed requirements for a lawyer's participation in an MDP. The Law Society would be able to scrutinize the way in which firms intend to adhere to a specific set of rules. The Society could also prevent a lawyer participating in an MDP that was not in the public interest, such as one in which a lawyer proposed an alliance with a non-lawyer the Society considered inappropriate. In addition, a review of a firm's plans would identify potential inadequacies in the methods proposed to meet the Law Society's requirements and maintain the core values critical to the practice of law.
An alternative licensing scheme that the Benchers considered would have placed the onus on law firms that wished to practise in a multi-disciplinary environment to devise solutions to achieve compliance with the current rules. Under this scheme, the Law Society would not develop new rules, but would review the steps a firm proposes to comply with the current rules relating to the core values and grant a licence to those firms that devise solutions acceptable to the Law Society. A major problem with this model is that it would require every individual firm to invent solutions to MDP problems. While many large firms may have the resources to do this, lawyers with more limited resources may be hard pressed to devise suitable solutions.
Both these licensing schemes place a burden on the Law Society to review and approve every application for a licence.
Independence of the legal profession
The Benchers are inclined to require lawyers in an MDP to obtain from their non-lawyer MDP partners a written acknowledgment of lawyers' professional independence and ethical obligations and agreement to respect these. If lawyers either control the MDP or have significant influence, a formal acknowledgment by the non-lawyer partners of lawyers' professional duties may be unnecessary. However, the influence of lawyers in any given MDP may be significant or insignificant, depending on a variety of factors. Requiring formal agreement from the non-lawyer members of the MDP ensures that those members are at least aware of lawyers' professional duties of independence, including duties to the court. Non-lawyer partners who do not comply with such an agreement would be in violation of the partnership contract and would place their lawyer partners in breach of Law Society rules.
Two regulatory issues arise with respect to confidentiality when lawyers participate in MDPs. First, one or more non-lawyer partners in an MDP may be members of a profession that has less stringent or no standards of confidentiality. Second, there may be one professional, usually the lawyer, who is required to keep information confidential, while another may have a duty to disclose it. For example, if a client admits fraud or other illegal activity to a lawyer in the course of seeking legal advice, the lawyer has a duty to keep that information confidential, whereas an accountant who has withdrawn from the retainer because of that activity may have a duty to inform the subsequent accountant of the fraud or other illegal activity. Similar conflicts may occur in the respective duties of lawyers and social workers when a client discloses past sexual abuse of a child.
a) Differing regulatory requirements regarding confidentiality
The Benchers have leaned toward requiring lawyers to guard client confidences from non-lawyer members of the MDP, if necessary with screening devices. Lawyers would only be permitted to share those confidences with non-lawyer members if they have client consent. The Benchers rejected alternatives to permit all members of the MDP to comply with the regulatory requirements set by their own respective professions or to permit all members of the MDP to guard confidences against outsiders, but not those inside the MDP. These alternatives increase the risk that client information will be compromised and do not adequately protect confidential information that is also privileged.
Although requiring lawyers to guard client confidences from non-lawyer members of the MDP is the most onerous option, it has the advantage of ensuring a standard of confidentiality equivalent to that offered by law firms, which is the least likely to compromise the client's privilege.
b) Where duties of confidentiality conflict
To resolve any conflicts respecting duties of confidentiality, the Benchers may require an MDP to implement screening measures to prevent the transfer of some client confidences from lawyer members to non-lawyer members of the MDP who may have a duty to disclose them.
When that solution is insufficient, the Benchers would require clients to consent to the lawyer disclosing confidential information to a non-lawyer member of the MDP in circumstances where the non-lawyer cannot fulfil a legal or professional obligation unless the information is disclosed. If client consent is not forthcoming, the draft rules would require the lawyer to withdraw from the representation. The draft rules prevent a lawyer from providing both legal and audit services to the same client unless the client gives informed consent to the disclosure by the MDP of whatever confidential and privileged communications are required to satisfy the audit function.
Most Benchers have not favoured alternatives that prohibit lawyers from participating in MDPs or prevent lawyers acting for clients where there is a high risk that conflicting confidentiality standards will arise. Although such prohibitions would minimize the potential for conflict, they may prohibit some of the most useful forms of MDP for consumers.
See draft Law Society Rules 2-23.2(4) and 2-23.4.
See draft Law Society Rules 2-23.2(4) and 2-23.4.
Both solicitor-client privilege and litigation privilege are at issue in multi-disciplinary practice. Solicitor-client privilege applies to all communications between a lawyer and client for the purpose of obtaining legal advice. Litigation privilege applies to materials created or obtained by a lawyer for the dominant purpose of litigation.
It is likely that privilege will not ordinarily attach to information that is communicated by a client to a non-lawyer in an MDP. Similarly, if a lawyer in an MDP communicates information to a non-lawyer member of the MDP, that information will ordinarily lose its privileged character. However, if the client approaches the non-lawyer member of the MDP for the primary purpose of obtaining legal advice, or if the lawyer uses the services of the non-lawyer member of the MDP to assist in providing legal advice to the client, there is a strong argument that the privilege is maintained.
The Benchers favour requiring an MDP to:
a) notify a client at the commencement of the retainer of the implications for privilege of the client's engagement of the MDP, and
b) take all reasonable steps, including the implementation of screening measures, to protect privileged information from disclosure to non-lawyer members of the MDP.
These options ensure clients are informed about the implications of selecting an MDP instead of a more conventional law firm and enhance the chances that privilege over client communications will be maintained. The Benchers rejected options that place no particular obligations on an MDP to inform clients of the implications for privilege or to safeguard privilege.
See draft Law Society Rules 2-23.2(4) and 2-23.4.
See draft Law Society Rules 2-23.2(4) and 2-23.4.
The Benchers have in mind requiring all members of an MDP to adhere to the standards of lawyers when legal services are provided to a client or when a client has sought legal services, and to require the MDP to inform clients about how conflicts in the MDP are treated and the implications of that treatment. The Benchers preferred not to require non-lawyer members of the MDP to adhere to the standards of lawyers when legal services are not provided or sought. They also did not favour a standard that would permit each member of the MDP to adhere to the standards of their respective professions or occupations.
The standard the Benchers favour requires the MDP to maintain a conflicts standard that equals the standard now in place for law firms and others, such as experts who provide or assist in the provision of legal services to clients. It rejects, as too onerous, a standard that applies the conflict of interest standards of the legal profession if the services provided to the client have no legal component. It also rejects a standard that permits other professions to apply their own standards when a client's problem has a legal component. Such an approach would be inconsistent with the preservation of the core values of the legal profession.
The Benchers expect that the existing liability insurance program of lawyers will be maintained to cover those activities that are legal services in an MDP. Other members of the MDP will likely be required to hold comparable insurance to cover other services.
The Benchers considered advice from the Director of the B.C. Lawyers Insurance Fund to the effect that it is feasible to continue the current program structure by providing coverage (in relation to legal services) within a multi-disciplinary practice.
The Benchers did not wish to permit lawyers practising in MDPs to opt out of the existing program or to include non-lawyers in the existing program. Permitting lawyers to opt out of the program would erode the principle of universality. Insuring non-lawyer members of the MDP is potentially destabilizing to the Lawyers Insurance Fund because of lack of experience in that program with non-lawyer claims and the uncertainty of the risks involved.
Unauthorized practice of law
Under section 15 of the Legal Profession Act, employees of lawyers are an exception to the general rule against non-lawyers engaging in the practice of law.
Chapter 12, Rule 1 of the Professional Conduct Handbook requires a lawyer to maintain direct supervision over each non-lawyer staff member. Other rules in Chapter 12 set rigorous standards for the supervision of employees generally. In formulating draft rules to cover multi-disciplinary practice, the Benchers wished to ensure they maintained the requirement that lawyers supervise non-lawyers engaging in the practice of law.
The Benchers are inclined to require that a lawyer supervise a non-lawyer employee or partner in an MDP when the non-lawyer is doing any work that amounts to the practice of law. They did not favour a less onerous standard that would require a non-lawyer partner in the MDP only to collaborate with a lawyer when doing any work that is the practice of law. The standard favoured by the Benchers ensures that lawyers in an MDP have the same authority to control the work of non-lawyer partners and employees engaged in the practice of law as lawyers in a traditional firm have to control the work of non-lawyer employees in similar circumstances.
The Benchers plan to require that lawyers who participate in MDPs maintain separate trust accounts and records, and conform in all respects to Law Society requirements respecting the handling of trust funds. Non-lawyer members of the MDP working on matters other than legal matters would not be required to conform to Law Society requirements, but the MDP would be required to advise prospective clients of any differences in treatment of funds.
Most of the Benchers did not want to impose a requirement that non-lawyers conform to the accounting standards of lawyers in matters other than legal matters. Such a regulation would require the Law Society to assert authority to investigate the handling of trust matters in situations where lawyers have not played a significant role.
The Law Society Special Compensation Fund is available to compensate people who have suffered loss as a result of the defalcation of trust funds by a lawyer acting in that capacity. The Benchers have concluded that, when funds are misappropriated in an MDP, a claimant should have access to the Special Compensation Fund only when a lawyer is responsible. Lawyers need not make this limitation clear at the commencement of the retainer.
The Benchers did not endorse the option of permitting a claim against the Special Compensation Fund whenever any person in an MDP misappropriates funds or the option of requiring the MDP to obtain other coverage comparable to that of the Special Compensation Fund. They further were not prepared to require lawyers to advise prospective clients of the MDP about the scope of Special Compensation Fund coverage.
Permitting a claim against the Fund arising from the defalcation by a non-lawyer member of an MDP would require the Law Society to assume responsibility for people the Society does not license and could lead to potentially unlimited claims. Moreover, it would require special legislation. Requiring MDPs to provide benefits that are reasonably comparable to those available from the Fund would depend on such coverage being available in the market at a reasonable price. It would also impose a requirement for defalcation coverage on professions that may not currently require it and, as a consequence, increase the MDP's business costs.
The Benchers plan to allow an MDP the freedom to market non-lawyer services in any way it sees fit. However, when marketing materials refer to the legal services offered by the MDP, the materials must conform to the requirements of the Professional Conduct Handbook. This standard would permit the MDP to market its non-lawyer functions in ways that may not conform to the Law Society Rules, provided the materials it uses make no mention of the MDP's legal services. The Benchers have declined to endorse standards to require that marketing of services other than legal services complies with the Handbook.
Most Benchers feel that fees for legal services in an MDP should be itemized separately from the fees of non-lawyers, so that the existing fee review regime can be maintained. As there is already a requirement to segregate legal fees from other fees for calculation of PST, it is not unduly onerous to require MDPs to calculate legal fees separately from other fees at first instance.
The Benchers did not find adequate protection for clients in allowing MDPs to itemize legal fees only on request, to extend fee reviews to fees other than legal fees or to make fee review unavailable to clients of an MDP. The Legal Profession Act currently precludes these latter two options.
The Law Society has authority under the Legal Profession Act to apply for a court order authorizing intervention in a lawyer's practice through the appointment of a custodian if a lawyer dies, is incapacitated or is otherwise unable to maintain the practice.
A custodian's powers include the power to take possession of the lawyer's property and bank accounts. The custodianship provisions protect the interests of a lawyer's clients. As a practical matter, the Law Society only seeks to exercise its custodianship powers when there is no partner or associate available to administer the lawyer's practice and protect client interests.
The Benchers have opined that the Law Society's custodianship provisions should apply in MDPs and that, as a condition of practising in an MDP, lawyers must obtain the written agreement of their non-lawyer partners to comply with the Law Society's legislation on custodianships.
Although it is unlikely that the Law Society would have to use the custodianship provisions to take control of the legal practice of a large MDP, it is quite possible that some MDPs could have only a single lawyer as a partner or associate. It is conceivable that such an MDP might at some time need the assistance of a custodian to administer the law practice.
The majority of Benchers would not require lawyers practising in MDPs to maintain segregated client files and accounting records (other than trust accounting records), but would require them to obtain the agreement of their non-lawyer partners that non-lawyers in the MDP will cooperate with a Law Society practice review.
Although segregation of records would make it easier for the Law Society to conduct a practice review of an individual lawyer's work, the costs of requiring such segregation by all MDPs would likely be disproportionate to the benefits achieved. The Benchers were of the view that requiring the agreement of the non-lawyer MDP partners to cooperate with such a review would adequately protect the public interest.