Legal practice in Australia: from MDPs to incorporation.

• Author: Clark, S. Stuart

Organizational norms of the 18th century are giving way to those of the 21st as incorporated law firms are about to emerge in New South Wales

DURING the 1990s, the legal profession in Australia underwent considerable change. In New South Wales, Australia's most populous and litigious state, the degree of change has been considerable. In 1990, the structure of the legal profession would have been comfortably familiar to an English lawyer of the late 18th century. Today, in the second half of 2000, that structure in New South Wales is on the verge of adopting incorporated multidisciplinary practices that will be free to be governed and financed as a corporation.

Historically, the legal profession in Australia has followed the English tradition in that it has been divided between solicitors and barristers. The extent to which these divisions have existed has varied from state to state. However, at least in New South Wales, the division was a rigid one for many years. Solicitors were entitled to practice as either sole traders or in partnership, while barristers were permitted to practice only on their own.

While solicitors in Australia have always had the same right of audience before the courts as barristers, few chose to exercise that right in the past. Multidisciplinary partnerships, let alone incorporated partnerships, were unheard of--there was a strict prohibition on lawyers sharing profits with non-lawyers.

That now has changed--and how. These changes will affect solicitors, but not barristers. For lawyers who choose to practice as barristers, the rules governing the way in which they practice remain unchanged. They continue to be sole traders with unlimited personal liability. While groups of barristers come together to share some limited common facilities, few if any employ more than a single secretary, and all but a handful practice from a single room. Compared to the solicitor, little has changed since the late 18th century. For solicitors, however, particularly those in New South Wales, the extent of reform has been extraordinary.

MULTIDISCIPLINARY PARTNERSHIPS

On 1 July 1994, amendments to the New South Wales Legal Profession Act 1987 (LPA) took effect so as to allow the formation of multidisciplinary partnerships in that state. MDPs in New South Wales are discussed in our article published in the October 1999 Defense Counsel Journal (page 472). In that article, we set out the background to the 1994 changes to the LPA and the ensuing changes in the legal market. Despite these changes few, if any, true MDPs have been formed in New South Wales. Rather, legal practices have been established within, or as adjuncts to, some of the major accounting firms. This is because the 1994 changes require that the solicitor members of an MDP retain control of the legal practice and hold a majority of the voting rights in the MDP's affairs.

INCORPORATED LEGAL PRACTICE?

The New South Wales Parliament is now in the process of considering further amendments to the LPA that will have the effect of removing the remaining restrictions and allowing the creation of an incorporated legal practice in the form of a traditional corporation. The changes will be effected through the Legal Profession (Incorporated Legal Practices) Bill 2000 (NSW), which is currently before parliament. The second reading speech was delivered on 23 June 2000.

This bill appears set to become law, following a decision by the opposition parties to endorse...