When Slater & Gordon lawyer Pieter Kruger publicly declared that he had engaged in conduct recently found by the Supreme Court of Victoria to be illegal, and challenged me to report him to Consumer Affairs Victoria, it was not simply a matter of one lawyer debating another. Rather, Mr. Kruger’s taunt was a challenge to Consumer Affairs Victoria and the Supreme Court of Victoria in the wake of a declaration by the Supreme Court that negotiating the sale of real estate on behalf of a client is not an ordinary function of an Australian Legal Practitioner. But is Slater & Gordon too big to challenge?
If it looks like a duck and quacks like a duck…
On 27 March, 2012 the matter of Dr Claire Noone, Director of Consumer Affairs Victoria v Mericka & Ors (The MERICKA Case) was decided in favour of Consumer Affairs Victoria (CAV). A few days later, in a discussion I posted on the LinkedIn page of the Law Institute of Victoria Group about the court’s finding. I noted that the court had decided that, because my firm had promoted itself as being entitled to negotiate the sale of real estate on behalf of clients, it had held itself out to the public as being willing to engage in the “business” of real estate. This attracted a comment from lawyer Pieter Kruger.
Mr. Kruger’s comment was short and to the point, “If it looks like a duck and quacks like a duck…“.
Stung by the insensitivity and narrow-mindedness of a fellow legal practitioner, I checked Mr. Kruger’s LinkedIn profile, and discovered that he is a lawyer with the mega-firm Slater & Gordon, whose tag line is “No challenge too great”.
When I made the observation that he is a Slater & Gordon employee, Mr. Kruger was very quick to point out that his comments were his own and that they should not be regarded as comments made by his employer. This was duly noted, but the cat was well and truly out of the bag. However, Mr. Kruger did not stop there. He publicly declared that he had recently been engaged by a purchaser for the purpose of negotiating a real estate purchase and asked if I would report this to Consumer Affairs Victoria!
After some further discussion and questions about the legality of Slater & Gordon’s operations as an incorporated legal practice, having regard to the Supreme Court’s decision in The MERICKA Case all of Mr. Kruger’s comments were deleted, and the LIV began to censor further discussion on the topic.
This extraordinary act of censorship raises a serious question whether either Slater & Gordon did not want the matter discussed, or the LIV did not want to upset a law firm for whom “No Challenge Is Too Great”.
My further attempts to communicate with Mr. Kruger and Slater & Gordon have not been successful.
Only licensed real estate agents can represent buyers and sellers in negotiations
While all lawyers know that one of the most important functions of a legal practitioner is to represent his or her client in negotiations, the Estate Agents Act 1980 (the Act) has created a monopoly for licensed real estate agents when the negotiations relate to real estate or business transactions. Section 4 of the Act states that an estate agent is defined as being:
“any person who…advertises or notifies or states that he exercises or carries on or that he is willing to exercise or carry on or in any way holds himself out to the public as ready to undertake the business of negotiating for the sale purchase exchange letting or taking on lease of or any other dealing with or disposition of any real estate or business on behalf of any other person…”
Section 12 of the Act says that only a person holding an estate agent’s licence under the Act can promote himself (or itself, in the case of a company – including an ILP) as being willing to act as an estate agent, or can act as an estate agent, or can in any way hold himself (itself) out to the public as ready to undertake for payment or remuneration any of the functions of an estate agent.
Any lawyer (and any licensed conveyancers for that matter) who “in any way holds himself out” as being ready to undertake the function of negotiating in transactions involving the purchase or sale of any real estate or business is thus a real estate agent, and must hold an estate agent’s licence.
Exemption for Australian Legal Practitioners
According to Section 5(2)(e) of the Act, an Australian Legal Practitioner is exempt from having to hold an estate agents licence “for the purpose only of carrying out the ordinary functions of an Australian Legal Practitioner“.
Prior to The MERICKA Case it was the common understanding of legal practitioners that Section 5(2)(e) allowed them to negotiate the sale and purchase of real estate for their clients. As lawyers are entitled to advertise their services, it followed that lawyers could also publicly advertise their willingness to offer their skills as negotiators in real estate purchases and sales. This was certainly the view of the Law Institute of Victoria. CEO, Mr. Mike Brett-Young in a letter sent to me on 26 April, 2007, who stated as much:
“As you are the current holder of a practising certificate issued pursuant to the Legal Profession Act 2004 and if our above contention is correct, it would lead to the conclusion that you would be qualified and licensed to negotiate the sale and purchase of real estate on behalf of your clients.”
However, The MERICKA Case confirms an Australian Legal Practitioner cannot include negotiation as part of a business model.
While the legal practitioner may negotiate for a client “for the purpose only of carrying out the ordinary functions of an Australian Legal Practitioner“, the negotiation services being provided will cause the law firm to morph into a real estate business if the services are provided in an ongoing and systemic manner. In other words, an Australian Legal Practitioner may be entitled to represent a client who needs their lawyer to negotiate the purchase of a property in conjunction with another matter being handled by the practitioner (eg. advice on the contract or conveyancing services), but if the practitioner publicly declares that he or she is a good negotiator and will assist members of the public who are having difficulties in dealing with real estate negotiations and wish to specifically retain the lawyer for that purpose, then the tipping point for this being “for the purpose only of carrying out the ordinary functions of an Australian Legal Practitioner” is exceeded, and the Act is breached unless the lawyer holds an estate agent’s licence in addition to their practising certificate.
It is now likely that a lawyer who, when specifically asked by a client if their firm provides negotiation services, will be found to be in breach of the Act by answering in the affirmative unless the firm is also a licensed estate agent. And consider a message on hold that “notifies” the public that such services are available from an “unlicensed” law firm: this will apparently also breach the Act.
If the exemption will work at all, it appears that it will only do so in very limited circumstances, and only then where the lawyer does not notify or in any other way specifically held him or herself out to the public as ready to undertake any of the functions listed in Section 4 of the Act on an ongoing and systemic basis.
Incorporated legal practices are NOT exempt
Until the decision in The MERICKA Case most lawyers believed that the Legal Profession Act 2004 allowed an incorporated legal practice (ILP) to “engage in legal practice” pursuant to Section 2.7.4(1), providing legal services as a legal practitioner would, with the Legal Practitioner Director (LPD) assuming responsibility for ensuring that “appropriate management systems are implemented and maintained to
enable the provision of legal services by the incorporated legal practice” (see Section 2.7.10.). On this understanding, an ILP could, for example, employ non-lawyer paralegals to perform certain tasks for which the LPD take ultimate responsibility.
Conveyancers Act 2006
The finding that ILPs do not enjoy the exemption under the Estate Agents Act 1980 is problematic, as can be seen in an examination of the Conveyancers Act 2006. Large incorporated law firms (no doubt including Slater & Gordon) employ paralegals to perform a variety of tasks, conveyancing work being one of the most common.
According to Section 8 of the Conveyancers Act 2006 a person who is not a licensee as defined under that Act must not carry on a conveyancing business, but there are exemptions for an Australian Legal Practitioner and for an ILP. Legal practitioners do not believe that the Conveyancers Act 2006 would impact on them and their ability to employ non-lawyers for the purposes of performing conveyancing work, and they are right – so long as they are not incorporated. Thus, a suburban sole practitioner, as an Australian Legal Practitioner, is entitled to employ a paralegal to perform conveyancing work. (It should be noted that a law firm is deterred from employing a licensed conveyancer, as a licence holder must also hold professional indemnity insurance under the Conveyancer Act, and this would mean that the law firm would have to pay an expensive premium for insurance cover that is unnecessary when the conveyancer is already covered by the employer’s professional indemnity insurance. So, a person who is qualified hold a conveyancer’s licence will not retain their licence if they are employed by a law firm, and will not use the title “Licensed Conveyancer”.)
Prior to The MERICKA Case it had been assumed that an ILP could employ paralegals. This was based on the belief that the requirement at Section 8(2)(b) of the Conveyancers Act 2006 that an ILP’s conveyancing work must be “carried out on its behalf by an Australian Legal Practitioner” could be satisfied by the fact that the LPD would be supervising the paralegal’s work in his or her capacity as an Australian Legal Practitioner. However, it is now clear that the ILP is not saved by the exemption enjoyed by the Australian Legal Practitioner. Rather, the ILP is in breach and the LPD is aiding and abetting that breach by knowingly employing the paralegal and setting him or her tasks that fall within the definition of conveyancing work. It may even be arguable that the paralegal is similarly aiding abetting.
Estate agents Act 1980
In The MERICKA Case the Supreme Court found that where an exemption does not extend to an ILP, the situation is not remedied by the fact that the firm’s LPD may personally enjoy the exemption. In such circumstances the ILP is in breach, and the LPD aids and abets that breach.
This finding and its implications may not be immediately clear to those affected by it, hence Mr. Kruger’s ill-considered taunt and the hasty removal of his comments from the LinkedIn discussion referred to above are indicative of the uncertainty about the finding and its implications that still exists. Indeed, the President of the Law Institute of Victoria, Mr. Michael Holcroft, is still of the belief that a director of an incorporated legal practice can save the day because he/she is entitled to the exemption. On the LIV President’s Blog 2012, Mr. Holcroft posted this comment:
“On my reading of the decision, individual lawyers within an ILP would still be classified as Australian Legal Practitioners (as they have Practising Certificates). The status of para-legals is less clear.”
Slater & Gordon in breach of the Estate Agents Act 1980?
One of the key findings of the Supreme Court in The MERICKA Case was that an incorporated legal practice is not an Australian Legal Practitioner, and therefore does not enjoy the benefit of the exemptions applicable to legal practitioners. It follows that an incorporated legal practice cannot hold itself out publicly as offering services that include negotiating the purchase or sale of real estate. These services are expressly functions of an estate agent as defined in Section 4 of the Act.
The following information appears on the Slater and Gordon website under the heading Residential Property Buying and Selling for consumption by buyers and sellers of residential real estate in Victoria:
“Whether you are looking to buy the house of your dreams or you have decided to relocate, navigating your way through the process of buying or selling residential property can be tricky and begins well before signing the contract of sale.
At Slater & Gordon we’ll cover off on all the issues associated with the purchase or sale, from searches and inspections to drafting and preparing sale and legal transfer documents. We’ll also assist with negotiations and special conditions of sale and make sure that you’re not contractually bound to unfavourable terms and conditions.”
“As a buyer, please understand that the contract is not set in stone until the seller has signed on the dotted line. If you would like to negotiate special inclusions, fix problems identified in pre-settlement inspections or delete conditions in the contract, now is the time. Having the experience of a specialised legal representative to review and advise on the details of the contract and negotiate any amendments on your behalf may save you from additional cost, anguish and regret in years to come.
A solicitor has a trained eye to check for issues you may not have considered such as making sure zoning, heritage or title restrictions don’t clash with your intended use of the property, or checking that all property rates and taxes have been paid, and that the seller is actually entitled to sell the property.
Once agreeing to the negotiated terms of the contract, both parties sign a copy of the document.”
It can be seen that Slater and Gordon has apparently been holding itself out for some time as being willing to negotiate on behalf of buyers and sellers of real estate, and as at the time of my writing this article (22 April, 2012), it continues to do so. If we consider that Pieter Kruger’s comments appeared in the public domain well over a week ago, that Mr. Kruger was aware of the findings of the Supreme Court, and that Slater and Gordon continues to publicly advertise that it is prepared to undertake negotiating on behalf of buyers and sellers of real estate on an ongoing and systemic basis, it does seem that Slater and Gordon remains unconcerned about breaching the Estate Agents Act 1980. Yet clearly The MERICKA Case has put it in issue whether it is complying.
Slater & Gordon – too great to challenge?
I have suggested – with the hope of evident humour – that Slater & Gordon’s tag line be modified from “No challenge too great” to “Too great to challenge”, in order to draw attention to the way Consumer Affairs Victoria has conducted itself in the enforcement of laws that are not only long past their “Use By” date, but which were ill-considered and poorly drafted in the first place.
While I have been advised by my lawyers that the only way to achieve true compliance (given I personally already have an estate agents licence) is to either unincorporate my law firm, obtain a separate licence for my firm or cease informing members of the public that I can represent them in negotiating their purchases and sales, a mega-firm with the status of being a world leader in legal services innovation is not yet being subject to the same rigorous diligent attention by the investigators of CAV.
The Supreme Court was informed last week in an affidavit by General Counsel for Consumer Affairs Victoria, Mr. Blair Ussher, that he had been trawling through blog comments made by me in order to discover anything I may have said that would indicate an intention by my law firm to continue to offer negotiation services without an estate agent’s licence after the judgment had been handed down.
Given the diligence and determination Consumer Affairs Victoria has directed at The MERICKA Case, one would expect that they would now take the same opportunity to bring all recalcitrant ILPs to book. Presumably Mr. Ussher and his staff will have a busy time spending their working hours reviewing websites and other marketing material of all lawyers practising in Victoria. One wonders, however, given the absence of any advice, warnings or policy statements by Consumer Affairs Victoria or the Law Institute of Victoria, whether the likes of Slater and Gordon are in Consumer Affairs Victoria’s view just TOO GREAT TO CHALLENGE!