Prohibition of non-lawyer control in law firms

Hong Kong’s current legislation in respect of non-lawyer involvement in legal practices leaves little to interpretation. The laws, rules and regulations currently in place in Hong Kong make it clear that non-lawyer involvement in legal practices is prohibited.

The terms ‘solicitor’ and ‘Hong Kong firm’ are defined clearly in the Hong Kong legislation. First, a ‘solicitor’ is defined in the Legal Practitioners Ordinance (“Ordinance”) as ‘a person who is enrolled on the roll of solicitors and who, at the material time, is not suspended from practice.’ In the same rules, a ‘Hong Kong firm’ is defined as ‘a law firm in which –

(a) all the partners are solicitors; or

(b) the sole practitioner of which is a solicitor’

The position on who may, or may not, manage or control a Hong Kong law firm is clear from the outset, with both the definition of a Hong Kong firm and that of a solicitor restricted to only those who are legally qualified. For the avoidance of doubt, a qualified person is ‘a person qualified for admission as a solicitor’, while an unqualified person means ‘a person who is not a solicitor.’

The Ordinance makes it clear what falls within the remit of those qualified in law and those not qualified. Relevant sections of the Ordinance set out the position in respect of an unqualified person not to act as a solicitor and the penalty for any person contravening those sections is severe. For example, any person contravening section 45(1) of the Ordinance is liable on summary conviction to a fine of $500,000 and to imprisonment for 2 years.

Non-lawyer involvement in legal practices is taking shape in different forms in some overseas jurisdictions ranging from, for instance, the full blown Alternative Business Structures (ABS) which allow 100% passive non-lawyer investment in law firms, to profit sharing arrangements between lawyers and non-lawyers in multi-disciplinary practices (MDP) and incorporated legal practices (ILP). However, as Hong Kong legislation currently stands, solicitors are prohibited from sharing profits/fees with those who are not practising solicitors in Hong Kong. The prohibition is set out in rule 4 of the Solicitors Practice Rules and reinforced in Principle 4.16. of the Hong Kong Solicitors’ Guide to Professional Conduct (“Conduct Guide”).

Under the current legislation, a multi-disciplinary partnership arrangement is prohibited because it requires that law firms are kept as separate entities clearly designated as just that; a law firm in line with the legislative definition. Principle 2.04 (Standards of Supervision and Management) of the Conduct Guide provides that solicitors shall ensure that every office where they or their firms practise is and can reasonably be seen to be supervised and managed in accordance with rules 4A and 4B of the Solicitors’ Practice Rules. When a Hong Kong law firm is open to the public, it must be supervised and managed by a practising Hong Kong solicitor. Further, a solicitor has a legal and professional duty to his client to hold in strict confidence all information concerning the business and affairs of his client acquired in the course of the professional relationship. A solicitor’s practice is therefore required to be conducted in self-contained premises and all staff and facilities should be under his exclusive control.

The above brief summary of the various rules and regulations in Hong Kong is aimed at clarifying any uncertainties regarding the regulatory environment vis-a-vis non-lawyer involvement in a law firm in Hong Kong.

The Law Society is keeping a close watch of the global trend and evaluating the relevant pros and cons of the emerging new practice models. Those jurisdictions advocating permission of non–lawyer involvement support that the change will bring various benefits including enhanced innovation and more choice for consumers, healthy competition resulting in reduced prices, improved access to justice, greater convenience for consumers, better access by law firms to finance and improved recruitment, retention, recognition and reward of legal and non-legal staff.

From a law firm’s perspective, perhaps the most significant factor in favour of permitting non-lawyer involvement is that it improves a firm’s access to finance. Traditional firms are constrained in the way in which they can access capital with their options limited to the partners’ capital and bank loans. Through the lifting of non-lawyer restrictions, firms can seek to raise equity from a broader range of sources to fund expansion and investments in new business models, technology and information systems. The Big Four which have their eyes set on the legal services business have all entered the legal market through ABSs in England and Wales. Deloitte, being the last of the four accountancy giants granted an ABS licence in June 2018, has also gained authorisation to provide services in reserved legal activities involving rights of audience, conduct of litigation, reserved instrument activities, probate activities and administration of oaths in England and Wales.

On the other hand, those jurisdictions which do not allow non-lawyer involvement in law firm practices are concerned that such a change will incur huge costs in the overhaul of the entire regulatory framework to address regulatory concerns arising from the change and cause regulatory conflicts among different professions which are subject to different duties.

The area that has caused greatest concerns from across different jurisdictions about the arrival of non-lawyer involvement is that it fundamentally compromises the core ethical values – to maintain independence, to avoid conflicts of interests and to respect clients’ confidentiality – of the legal profession. The crux of the issue is that non-lawyers are not bound by the same duty as lawyers, so they may have different allegiances to the way the firm is run. Any structure that risks putting non-lawyers’ interests ahead of lawyers’ professional principles will be of concern.

The challenge is to find a solution that facilitates the sustainable development of the legal profession while safeguarding against any erosion of the core values that define the profession’s very existence.


Melissa K Pang, President

Jurisdictions: 

President

The Law Society of Hong Kong