A lawyer's first duty isn't to shareholders
The interests of Slater and Gordon’s shareholders and lawyers could be in conflict, writes Alan McDonald.
It is well known that Slater and Gordon as a law firm can only employ lawyers who have an overriding obligation to the courts in which their cases are litigated, and which ranks ahead of the commercial interests of the company and the shareholders.
The lawyers have an overriding obligation to uphold the law, not merely to comply with the law as they are officers of the court. Their obligations to the court include:
Section 3.1 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 provides that: "A solicitor’s duty to the court and the administration of justice is paramount and prevails to the extent of inconsistency with any other duty."
Therefore, while various kinds of duties are imposed on lawyers, as officers of the court, the duty to the court is overriding in all of their dealings.
The duty to the court is an ‘obligation to apply the rule of law and to assist the court in the doing of justice according to law in a just, efficient and timely manner.’ It forms the foundation of litigation, both civil and criminal. Upholding this duty requires lawyers to act honestly, with competence, exercise independent judgment in the conduct of cases, and ‘not abuse the court’s process by the improper initiation or maintenance of court proceedings’.
This paramount duty can sometimes conflict with a lawyer’s duty to his or her client to the extent that a lawyer’s primary duty is to the court while their secondary duty is to the client. Arising from their duty to the court is a lawyer’s duty to society. Historically, the legal practitioner’s role was one of servant to the public to support and promote the rule of law.
Conflicting duties, however, do not only arise in the context of the lawyer-client relationship, they also exist between a lawyer’s self-interest, such as making and increasing profits through legal representation. For lawyers working in law firms, this self-interest translates into a duty to their employer to support and perhaps increase the business of that law firm.
It is therefore not unrealistic to suggest that there could be a range of situations where a lawyer must forego their duty to their clients and employer in favour of their duty to the court. For banks and shareholders, the prime goal is profitability whether in dividends or growth in share value. The question is: Will the banks and shareholders recognise that their interests are second to Slater and Gordon’s duties to the court?
It is not merely that the lawyers, like employees of all companies, have an obligation to act lawfully. It is sometimes necessary for lawyers to give undertakings to a court in relation to their conduct. Those undertakings are not based upon any financial relationship with the client, but are given to the court so that judges can rely upon the lawyer to act in a certain way to uphold the law even if the client does not wish to do so.
An incorporated legal practice must have at least one lawyer on its board. The assumption being that the lawyer will ensure that the lawyer’s professional obligations to the courts are met.
As NAB and Westpac run the ruler over Slater and Gordon, whose board position has been weakened by the reduced share price, will it balance the profit motivation of the banks and shareholders?
Section 256 of the Legal Profession Uniform Law gives power to the Legal Services Commissioner to check the governance of Slater and Gordon. Has it done so or will it do so in support of the board? That is one way that the reputation of law firms can be protected, which is a key role of the Legal Services Commissioner. Furthermore, practice of the law is profitable because it is based on professionalism and high standards. Unless the Legal Services Commissioner is active in upholding the professional standards at this time, there could be damage to the legal profession and its profitability in the long run.
Alan McDonald is the managing director at McDonald Murholme.