The Lawyers and Conveyancers Act 2006: how will it affect you?

In March, Parliament finally passed the Lawyers and Conveyancers Act 2006 (the Act), creating a new statutory framework for the legal profession. The Act will affect both lawyers and consumers of legal services.

We thought it would be useful to outline some of the key changes, which will be implemented over the next 18 months.

Some of these have been well publicised. In particular:

The creation of a new profession of conveyancing practitioners able to carry out conveyancing work in competition with lawyers;
The ability for law firms to form limited liability companies, subject to restrictions on who may be directors and shareholders and personal liability of directors and voting shareholders for theft by the firm or its directors, employees or agents from a client (as well as continued liability for their own acts and omissions);
The replacement of Queen's Counsel by Senior Counsel, with appointment being open to lawyers in all forms of practice, not just barristers sole; and
The end of compulsory membership of District Law Societies.

However, other important changes have received less attention.

These include:

The introduction of a set of "fundamental obligations" owed by all lawyers;
The ability of non-lawyers to offer non-litigation legal services to the public;
The ability of lawyers employed outside law firms to offer some non-litigation legal services to the public; and
New consumer protection provisions, including a "Code of Professional Conduct and Client Care".

This article considers some of these less well-known changes and their likely impact.

Fundamental obligations of lawyers

The Act sets out four "fundamental obligations" which apply to every lawyer who holds a practising certificate, including in-house counsel and lawyers employed outside law firms. They are:

(a) The obligation to uphold the rule of law and to facilitate the administration of justice in New Zealand;

(b) The obligation to be independent in providing regulated services (i.e. legal services) to clients;

(c) The obligation to act in accordance with all fiduciary duties and duties of care owed by lawyers to their clients; and

(d) The obligation to protect, subject to overriding duties as an officer of the High Court and duties under any enactment, the interests of clients.

The new statutory duties are not substantially different to the duties that lawyers previously owed under the common law and the Rules of Professional Conduct. While it is possible that the change from a common law to a statutory basis may lead the Courts to take a different approach to interpreting them, it seems more likely that the Courts will see the obligations as declaratory of existing law. Therefore, while lawyers need to be aware of the fundamental obligations and ensure that they abide by them, they should not require any change in practice.

Non-lawyers able to offer non-litigation legal services to the public

The Act establishes certain "reserved areas of work" which it is an offence for a person who is not a lawyer to carry out work in for gain or reward. Any person may provide legal services outside these reserved areas, provided they do not hold themselves out as being a lawyer or as having any qualifications or expertise in law which they do not have (each of which is an offence under the Act).

The "reserved areas of work" are:

Giving legal advice in relation to the direction or management of any proceedings before a New Zealand court or tribunal;
Appearing as an advocate before a New Zealand court or tribunal;
Representing any other person before a New Zealand court or tribunal;
Giving legal advice or carrying out any other action that is required by any enactment to be carried out by a lawyer.

In addition, the Act makes it an offence for a person who is not a lawyer (or entitled to do so under an Act) to draft court documents for gain or reward.

Non-legal organisations such as accounting firms, banks, internet service providers, or even supermarkets could therefore offer their customers a range of legal services outside the reserved areas, such as advice on contracts, tax, and wills. This raises important consumer protection issues which are not addressed in the Act. For example, a client consulting a non-lawyer will not be entitled to claim legal professional privilege in relation to the advice he or she receives, nor will he or she have the protection of the Lawyers' Fidelity Fund, the NZLS complaints and disciplinary procedures or the other protections provided by the regulation of lawyers under the Act.

Consumers of legal services need to be aware of these issues. Together with the inherent risk in using unqualified and unregulated advisers, they are likely to mean that the market for the provision of legal services by non-lawyers will be limited to standard form matters.

Lawyers employed outside law firms able to offer legal services to the public

The Act is muddled on the issue of whether lawyers employed outside law firms (e.g. in accounting firms, insurance companies or trustee companies) can provide legal services to their employers' clients or other members of the public. A lawyer or incorporated law firm is guilty of misconduct if he, she or it shares, with any person other than another lawyer or incorporated law firm, the income from any business involving the provision of regulated services to the public. This rules out multi-disciplinary partnerships. In addition, a lawyer who is employed other than by a law firm or another lawyer is guilty of misconduct if he or she provides regulated services to the public.

However, the prohibition on lawyers employed by non-law firms offering legal services does not apply if the lawyer is:

(a) Providing regulated services to his or her employer (i.e. providing legal advice solely in an in-house capacity); or

(b) Both an employee and practising on his or her own account; or

within the "reserved areas of work" (as set out in the previous section); or
services that consist of the drafting of any document to be filed in proceedings brought before any court or tribunal; or
conveyancing services; or
services that a lawyer provides by undertaking the work of a real estate agent.

Therefore, lawyers employed outside law firms can offer some legal services to their employers' clients as well as to their employers. To complicate matters however, the Act provides that a lawyer employed outside a law firm is not permitted to assist his or her employer to provide regulated services to a person with whom the lawyer has a "lawyer and client relationship".

This appears to mean that lawyers employed by non-law firms are only able to provide legal services to their clients if they make it clear that they are not acting as their lawyer. The effect is that legal professional privilege will not apply, nor any of the fiduciary duties that are part of a lawyer and client relationship.

Lawyers employed outside law firms who are considering providing legal services to their employers' clients therefore need to take considerable care and should seek further advice before doing so.

New requirements for the protection of clients

The Act requires NZLS to introduce new Rules of Professional Conduct, (with a focus on the four fundamental obligations), and a new "Code of Professional Conduct and Client Care". This will require lawyers to provide clients with information in advance on the principal aspects of client service, including:

The basis on which fees will be charged;
Indemnity insurance arrangements;
The coverage provided by any fidelity fund; and
Complaints mechanisms.

These requirements build on the existing practice of leading law firms which provide clients with terms of engagement at the outset of an instruction.

The obligation to provide information about indemnity insurance means that clients will be better able to assess the risk in dealing with a particular firm.

The Act also provides that the rules made by NZLS may require lawyers, or any class of lawyers, to undertake continuing legal education (CLE).

This is simply a continuation of the existing power to impose compulsory CLE requirements under the Law Practitioners Act.

As under the Law Practitioners Act, the fact that NZLS is able to discriminate between different classes of lawyers means that there is scope for in-house and corporate lawyers to be made exempt, or for different CLE requirements to apply to them.

Conclusion

While theoretically opening the way for major changes in the market for legal services in New Zealand, in practice, the Act is likely to have only a minor impact. However, many aspects of the implementation of the Act are yet to be worked out.

If you have any questions or comments about any aspect of the Act, please contact one of the team listed in this update or your usual Bell Gully advisor.

AUCKLAND

Roger Partridge
Partner

Jenny Cooper
Senior Associate

WELLINGTON

Mike Colson
Partner

Mark O'Brien
Partner

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