By Steve Mark, Legal Services Commissioner, NSW

The commercialisation (or commoditisation) of legal practice in NSW (and indeed, globally) has the potential to significantly affect the status and standing of the legal profession. Each dynamic of commercialisation presents its own unique challenges.

The greatest threat, common to all of the changes discussed in our first Opinion piece, is the potential erosion of a legal practitioner’s ethical standards and professional obligations to the Court and the administration of justice (a higher duty as discussed by Sanders). External ownership, for example, threatens that very obligation demanding a primary duty to shareholders which if not appropriately regulated, must override the traditional professional obligations of legal practitioners. Similarly, the use of technology in legal practice can create a potential threat to the traditional obligations of legal practitioners. The duty to maintain confidential information and avoid conflicts is at risk where legal practices use the Cloud to store client information or outsource legal work.

So how does a regulator manage such threats and ensure that legal practitioners adhere to their professional and ethical obligations? A regulator must devise a framework that is responsive, principle-based and flexible enough to allow individual practitioners and firms to create their own ethical infrastructures that incorporate integrity and trust as key aspirations.   As Miller comments, “[S]o called integrity systems are arguably the primary institutional vehicle available to ensure ethico-professional obligations are discharged, to combat crime and corruption and, therefore to maintain and promote trust.”

At the OLSC we strongly believe that our primary purpose in regulating the legal profession is not simply to ensure compliance, but must be to reduce complaints against legal practitioners within a framework of consumer protection, promotion of the rule of law and of professionalism. One of the main concerns that has been expressed about the commercialisation of the profession is that the profession has become more focussed on profit rather than its duty to the Court (which stands for the community and the search for justice), particularly where coupled with the commoditisation of law through modern approaches to legal practice. The concern expressed is that commercialisation and commoditisation will diminish the profession in the eyes of the public thereby further diminishing the rule of law and its impact.

We have addressed the tension between being a business and a profession by developing a regulatory framework that embeds ethical structures. For example, we require firms that have incorporated including those that are multidisciplinary and/or publicly listed to establish and maintain an "ethical infrastructure" - that is formal and informal management policies, procedures and controls, work team cultures, and habits of interaction and practices  - that supports and encourages ethical behaviour. Our ability to audit these practices allows us to avoid being only reactive to complaints, a common criticism outlined by Loughrey. The ethical infrastructure is overseen by a legal practitioner director within each practice. This process which allows practices to develop their own systems to meet their special needs, is a bottom up approach to regulation, rather than a top down approach which, as Turnbull notes, is unreliable and breeds inefficiency.

The ethical infrastructure required for ILPs has proven to be a great success.  We are seeing, by and large, better and more ethically managed legal practices. We are also seeing a fall in the number of complaints.  According to the results of a research study we conducted in 2008, together with Dr Christine Parker, of the University of Melbourne, on average the complaint rate (average number of complaints per practitioner per years) for ILPs after self-assessment was two thirds less than the complaint rate before self-assessment. We have found that the requirement to implement an ethical infrastructure not only results in a reduction in the number of complaints but it also provides better protection for consumers and a more productive work environment for legal practitioners.

In further support of the ethical obligations of legal practitioners we have also encouraged those publicly listed law firms in Australia to include in their constituent documents a hierarchy of duties that states that their primary duty is to the Court, their secondary duty is to the client and their tertiary duty is to the shareholders. This hierarchical statement has been included in both Slater & Gordon and Integrated Legal Holding’s constituent documents.

We have proposed an analogous regulatory regime for third party litigation funders. We have submitted that funding of litigation is inherently and intimately connected with the provision of legal services and the administration of justice, particularly where the funder plays an active role in choosing the litigation, the lawyers and being engaged with litigation strategy. We submit that a litigation funder’s relationship is thus fiduciary in nature and a litigation funder’s primary duty should be to the Court. We propose that litigation funders ought thus be regulated in the same manner as ILPs. We thus propose that litigation funders be required to adopt and maintain an ethical infrastructure similar to that required by ILPs and that litigation funders appoint a legal practitioner to overseas the infrastructure that is instituted.

In relation to the use of technology we have proposed that practitioners adopt an ethical infrastructure in the form of management policies and are now in the process of drafting guidelines for practitioners that set out how to use new technologies ethically.  We encourage firms to adopt a social media policy, a policy on outsourcing as well as a policy on virtual law practice. Guidelines are being developed to this end as well. 

At the heart of our approach lies the notion of ‘regulating for professionalism.’  So, when the OLSC receives a complaint against a lawyer, our first response, where possible and appropriate is not to look towards prosecution of the lawyer but to work with him/her in trying to determine the underlying basis of the complaint, attempting to resolve the complaint and an appropriate response the lawyer can take in eliminating future complaints. Where complaints of professional misconduct or unsatisfactory professional conduct are substantiated we reprimand practitioners or prosecute where necessary. This can also emerge during our use of our audit power which we use to assess and improve behaviours of legal practitioners in their practices.

The OLSC’s role as a regulator is therefore to work with the profession in entrenching an ethical culture and promoting professionalism in legal practices, while reducing complaints. This ‘education towards compliance’ framework is the dominant paradigm of the OLSC and sits well within our philosophical approach of ‘regulating for professionalism.’ We can do this because our office has extremely strong powers to audit and prosecute those who do not or cannot comply. As Saunders notes, a strong regulator is essential to the success of this approach.

The purpose of this series of Opinions has been to explore the interface between morality, ethics, trust and integrity within the context of financial markets and legal practice. We are constantly faced with the tension between market capitalism and ethics particularly in legal practice. Recent work done by the OLSC in analysing Australian and overseas trends in commercialising and commoditising legal practice suggests that these trends are accelerating and the need is greater than ever to develop effective and responsive regulatory means to contain them. In our experience, It is not only the billable hour or globalisation that is driving this process, but it is the demand of the market for constant growth. For the profession to remain a profession this threat needs to be addressed and sustainability be recognised as central to the future of the profession. The design of any ethical infrastructure that incorporates concepts of integrity and trust, as proposed by Vines and the Balliol College project, will be a major component in this. 

This article was co-authored by Tahlia Gordon, Head of Research and Projects at the OLSC