Introduction: What’s the issue?
Legal practitioners in Queensland should all now be aware of the professional ethical regime introduced in June 2012 by the Australian Solicitors Conduct Rules (ASCR). It applies to all solicitors practising in Queensland save for government lawyers, and certainly applies to practitioners employed as in-house legal counsel.
Presently, around ten percent of Queensland practising certificates are issued to in-house counsel, which represents continued growth of this sector of the profession. In the face of that growth, the uniform application of the ASCR makes sense.
Certainly, as the once relatively sparse ranks of in-house counsel have expanded over recent times, Courts have been quick to emphasise the parity of conduct expected of this group of professionals, compared with that of their counterparts in solicitors’ firms (and now incorporated legal practices), and in sole practice. At least one judicial commentator has observed that ‘[corporate counsel] are subject to the same duties to their client and to the Court’ as their counterparts in private practice.1
That said, there are a number of key areas in which in-house counsel more regularly face unique conundrums requiring role-specific consideration. An issue which may be at the front of mind at this time of year when practising certificates are due for renewal is that of the client for whom they are entitled to act.
By virtue of s 353(2)(b) of the Legal Profession Act 2007 (Qld) (Legal Profession Act), a lawyer employed by a corporation as in-house counsel may only obtain a practising certificate which entitles him or her to undertake the limited role of ‘providing in-house legal services’ to the employer corporation or to ‘a related body corporate’.
What is a ‘related body corporate’?
The Legal Profession Act looks to the definition of ‘related body corporate’ contained in the Corporations Act 2001 (Cth) (Corporations Act) in defining the group of entities to whom an in-house counsel may provide legal services.
Pursuant to the Corporations Act definition, a ‘related body corporate’ of the employer corporation will include:
- A company of which the employer corporation is a subsidiary (i.e. a holding company of the employer corporation); or
- A subsidiary of the employer corporation; or
- Another subsidiary of the holding company of the employer corporation.
Importantly, the key term ‘subsidiary’ has a very specific meaning.
A company (Company A) is a subsidiary of another company (Company B) if, and only if, Company B:
- Controls the composition of Company A’s board; or
- Is in a position to cast, or control the casting of, more than 50% of the votes that might be cast at a general meeting of Company A; or
- Holds more than one half of the issued share capital of Company A.2
The combined effect of these provisions is that it is quite possible that not every entity in a company’s corporate group will be ‘related bodies corporate’ such as to entitle the in-house lawyer to provide legal services. More is said about this below.
However, to begin, a couple of practical scenarios which consider common issues around the practising certificates of in-house counsel may assist in highlighting some of the key risks in this area.
Be sure to renew on time
Firstly, the basic obligation to hold and renew a practising certificate ought need no detailed explanation. Courts have regularly found that providing legal services without a current practising certificate constitutes professional misconduct, with harsh consequences for the practitioner.
Take for example the case of Legal Services Commissioner v Nguyen3, a Victorian case in which the practitioner claimed that his offences of engaging in legal practice without a current practising certificate originated in a simple administrative oversight in failing to renew on time. Ultimately, he continued to practise for around six months without a current certificate (including briefing counsel, instructing counsel in Court, and signing Court documents as corporate counsel), and was found guilty of professional misconduct. Various penalties were imposed, including an order restraining his ability to hold a practising certificate for a number of years, and limiting the terms on which he could thereafter seek a further certificate.
Avoiding the temptation (or pressure) to assist the employer’s clients or associates
Secondly, consider the simple scenario which arose in the Queensland matter of Legal Services Commissioner v Kellahan.4
Mr Kellahan was employed as corporate counsel by an entity known as NQV, and this was noted on his limited practising certificate. A Mr Newitt operated a separate commercial entity with which NQV had a business relationship. As Mr Kellahan and Mr Newitt had a friendly relationship, Mr Kellahan sought to assist Mr Newitt with ‘a personal legal issue’ arising in matrimonial proceedings in the Family Court.
Unfortunately, the ‘assistance’ moved well beyond mere discussions, and Mr Kellahan corresponded in writing with Mr Newitt’s wife (on Mr Newitt’s behalf), and also filed a document in the Family Court representing that he was Mr Newitt’s lawyer.
Unsurprisingly, this conduct was held to be in breach of the terms of Mr Kellahan’s practising certificate, which entitled him only to carry out legal work for his employer, NQV, or – by virtue of s 353 of the Legal Profession Act – its related bodies corporate. Neither Mr Newitt nor his commercial entity was a related body corporate. The conduct was found to constitute professional misconduct, and Mr Kellahan was banned from holding a practising certificate for three years.
This case sounds a warning bell for in-house counsel to resist any attempts to encourage them to assist in a legal capacity beyond the bounds of the in-house role, by way of a favour or courtesy to clients and associates of the corporate employer.
But what about the more subtle distinction between the employer’s own corporate entities?
Section 353(2)(b) of the Legal Profession Act (inclusive of the Corporations Act definition which it imports) is a strict requirement which can sometimes be misunderstood by either the in-house lawyer, or more often, by others within the organisation who may not appreciate the limits on the practitioner’s capacity to advise other entities.
In-house counsel need to be aware of those limitations around providing advice to other entities in their employer’s corporate group, and it is worth noting that some risk areas of which in-house counsel should be particularly mindful could include:
- Being asked to provide advice to entities which do not satisfy any of the ‘subsidiary’ requirements listed above (which may include situations where the employer entity holds only a minority shareholding, or does not have the power to appoint a majority of directors – this can be common in the case of incorporated joint ventures involving multiple parties or where a new investor has taken a majority interests in a company which was formerly a wholly owned subsidiary of the employer’s corporate group);
- Providing advice to entities owned by the same ultimate shareholders of the employer entity, but which are structured in such a way that they are part of a separate corporate group to the employer entity’s corporate group;
- Any situation where the lawyer is employed by a company which functions as the service or administration company in a corporate group structure and the ultimate shareholders of the administration company differ to the ultimate shareholders of the holding company of the corporate group; or
- Being asked to advise directors or officeholders of the employer corporation (or a related body corporate) in their individual capacity.
The Queensland Law Society, having responsibility for the issuing and renewal of practising certificates in this State, is unable to ‘notate’ a substitute or additional corporate entity (that is, anything other than employer company) on an in-house counsel’s practising certificate so as to avoid any of the above risk scenarios.
It follows that in-house counsel should carefully consider the employer entity named in their practicing certificate and which entities in that employer’s corporate group qualify as a related body corporate of their employer.
Corporate or in-house counsel must ensure their practising certificates are renewed on time (online renewal is available until 31 May 2014 at www.qls.com.au/renewal-guide). As a part of that process, it is worth giving careful consideration to the identification of the employer corporation, which is the primary entity to whom the lawyer is entitled to provide legal services.
Beyond those bare requirements, in day to day practice, in-house counsel should continually remain mindful of the limitations of their practising certificate. It is essential to clarify whether a particular entity seeking the practitioner’s assistance (other than the employer corporation itself) satisfies the strict legislative requirements of a ‘related body corporate’. Instructions to carry out legal work for any other entity should be refused, or at least deferred pending clarification of the above issues.
Independent consideration should be given to either corporate counsel’s entitlement to provide legal services to a particular entity, or any corporate structuring or employment issues which may need to be addressed to ensure business as usual for in-house counsel.