Independence is a cornerstone underlying all other obligations owed by a lawyer. One aspect of the principle of independence is encapsulated in rule 5 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (RCCC):
“A lawyer must be independent and free from compromising influences or loyalties when providing services to his or her clients.”
The Law Society from time to time receives queries about the permissible parameters of reciprocal and financial arrangements between lawyers, their clients and third parties. This article provides a brief outline of two rules which are relevant to these concerns.
Rules 5.8 and 5.9 of the RCCC relate to the acceptance of gifts and collateral rewards by lawyers. These rules reflect that a lawyer must avoid potentially compromising influences or matters which could cloud their objectivity.
Collateral rewards – client consent no cure
Rule 5.9 provides an unqualified prohibition upon a lawyer receiving or offering any reward or inducement from or to a third party in respect of referrals made, advice given, products or services purchased or any work done for a client .The only proviso is that the rule specifically allows for arrangements under which a third party has agreed to pay or contribute to normal fees payable by a client with the knowledge and consent of the client.
Traditional arrangements involving “legal fee contributions” from lenders or a landlord bearing the cost of renewal documentation would typically fall within the proviso to the rule.
The prohibition on collateral rewards in the predecessor to rule 5.9 was qualified and allowed for a referral reward in respect of client borrowing or investment provided the reward was fair and reasonable and the client was fully informed, consented and had been advised about other relevant sources of funds or investments.1 There is no equivalent exception in the current RCCC.
Client referral schemes are one example of the type of arrangement which is captured by the rule. The Ethics Committee recently looked at such an arrangement under which a lawyer proposed offering a reward to a third party for referrals received. The committee observed that the rule is unqualified and there is no express exception permitting waiver by a client.
Referral arrangements involving incentives have the potential to establish a close relationship between the law firm and referrer, creating a risk that the law firm’s loyalties will be divided. This is inconsistent with the broader principle reflected in rule 5 that a lawyer must be free from compromising influences.
The concept of “reward” is not limited to financial payment but could include overseas travel, event tickets, vouchers, reciprocal client referrals or endorsement.
Schemes framed to reward professionals – including lawyers for referring clients to external corporate bodies – are promoted at times. Participation by a lawyer in such a scheme would not appear permissible under the current rule. Any breach of the rule could not be cured by informed consent of the client involved.
As an aside, a potential breach of the Secret Commissions Act 1910 may also be established in circumstances where a client was not advised of any referral or reward arrangement between a lawyer and third party.
Gifts-acceptance must be consistent with trust and confidence
The relationship of lawyer and client is fiduciary in nature and is based on the utmost trust and confidence which must never be abused (rule 5.1).
Receiving occasional Christmas goodies or a bottle of wine from a happy client is an accepted and gratifying part of a professional practice. However, a lawyer must not accept any gift where acceptance would be inconsistent with the lawyer-client relationship and could potentially interfere with a lawyer’s independence and ability to remain objective.
Under rule 5.8, any lawyer proposing to accept a significant gift may only do so after the client has taken prior independent advice. The rule extends to gifts given by a client to a person the lawyer has a close personal relationship with or a member of the lawyer’s practice.
A lack of absolute clarity around acceptance of a financial “gift” or reward may lead to potential client concerns down the line. For example, in the event of a relationship breakdown between lawyer and client, issues could arise about the status of the payment and under the reasonable fees rule (rule 9).
In addition, if the “gift” status of a payment is later disputed, this could lead to an alleged breach of s 110 of the Lawyers and Conveyancers Act 2006, had the funds not been paid into a nominated trust account.2
Despite the option of independent legal advice for a client, there may be circumstances where the nature of the gift offered or the imbalance in the relationship is such that a lawyer will be unable to accept the gift and continue to meet their ethical obligations.
Any lawyer considering entering an arrangement involving a third party or accepting a gift from a client should carefully consider the boundaries of rules 5.8 and 5.9 and the potential professional implications.
A careful approach would include reflecting on whether any arrangement potentially infringes the prohibition in rule 5.9 or the acceptance of a gift could be seen as compromising independence. In the event that a lawyer decides to accept a significant client gift, a clear record of both parties’ understanding of the transaction and referral for independent advice is vital to avoid future difficulties.
Taking advice, if appropriate, from a trusted colleague may be a helpful starting point. Discussing concerns with a member of the Law Society’s Panel of Friends may also be of assistance. (www.lawsociety.org.nz/practice-resources/practising-well/national-friends-panel)
Charlotte Walker is Senior Solicitor Regulatory with the New Zealand Law Society.
1. Rules 1.06 and 4.04 of the Rules of Professional Conduct for Barristers and Solicitors 7th edition (consolidated) 2008 New Zealand Law Society.
2. A recent example may be found in Auckland Standards Committee 5 v Chen  NZLCDT 2 – see discussion by Paul Collins in Professional Responsibility in New Zealand LexisNexis Online Chapter 5 Independence (rr 5-5.12) [90,250] and [90,255].