A recent Mediation Settlement from the BC Privacy Commissioner has raised an issue of particular interest to law firms, and other organizations which must meet “Know Your Client” requirements. The item is brief (it is reproduced in its entirety below), but seems to suggest that free legal advice doesn’t trigger the “Know Your Client” provisions imposed by various Law Societies for compliance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. According to this Mediation Settlement, only paid legal advice triggers that obligation.
What sparked the issue was an individual who contacted a law firm to take advantage of a free consultation offer, and was told that they would need to show identification during the consultation. Not only did the individual not become a client of the firm, they promptly complained to the BC Privacy Commissioner. The matter was settled by way of mediation:
Potential client questions law firm demand for identification
An individual called a law firm to set up a meeting with a lawyer to discuss a legal difficulty, with the expectation they might hire the firm to handle their case, depending on the outcome of the meeting. Like many law firms, this one offered free initial consultations to enable the firm to decide if it wanted to take someone on as a client.
During their initial phone call, the potential client was told they would be required to show identification during their meeting with the firm’s lawyer. This requirement seemed unreasonable so they decided not to become a client. Instead, they complained to us that the law firm was demanding too much personal information.
Section 7 of the Personal Information Protection Act says businesses cannot collect more information than they need to provide their service or product. During mediation with our office, the law firm told us the Law Society of British Columbia rules required it to verify the identity of its clients to comply with the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act. However, it also acknowledged that the Law Society did not require it to confirm the identity of a potential client to whom it provided free advice. It agreed to review the distinction with its staff to ensure potential clients would receive accurate information regarding personal information requirements
The key seems to be the distinction between “potential client” versus “client”. Indeed, the Law Society of Upper Canada guidance on Client Identification And Verification Requirements For Lawyers uses similar language, with the trigger being when a lawyer is “retained”.
Identifying the client means obtaining certain basic information about your client and any third party directing, instructing or who has the authority to direct or instruct your client such as a name and address. You must obtain this information whenever you are retained to provide legal services to a client unless an exemption applies.
However, in the Rules of Professional Conduct, “client” is defined as a person who:
- consults a lawyer and on whose behalf the lawyer renders or agrees to render legal services; or
- having consulted the lawyer, reasonably concludes that the lawyer has agreed to render legal services on their behalf.
The commentary to rule 1.1-1 provides that a “solicitor and client relationship may be established without formality.” This means that no retainer agreement or monetary payment is required to establish a solicitor-client relationship. This would appear to be exactly the reverse of what the BC Mediation Settlement suggests.
However, the client versus potential client boundary is less of a bright line boundary and more of a swampy “zone”.
The law recognizes that clients and lawyers need to be able to talk under the protection of solicitor-client privilege prior to a relationship being established. The client needs to be able to describe the problem/mandate and the lawyer needs to assess whether to take on the work. As a result, solicitor-client privilege does not depend on the existence of a retainer.
However, once advice is given, then the lawyer then owes duties beyond confidentiality including competence, avoidance of conflicts, etc. These duties don’t turn on payment. A lawyer can be sued for negligence having agreed to assist whether pro-bono or paid.
Current business development practices mean many firms (like the one that is the subject matter of the Mediation Settlement) offer free advice before agreeing to act – even though there is already a lawyer-client relationship. What is really being explored is whether there should be an ongoing retainer.
Regardless, this distinction may have been lost in the Mediation Settlement.