Space Sharing: Liability, Trust Accounts and Conflict

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By Tana Christianson, Director of Insurance, Law Society of Manitoba
Updated and applicable for Saskatchewan Lawyers

Many lawyers practice outside of conventional law firm partnership arrangements.  Under the Law Society Rules, the definition of firm includes one member or two or more members practising together and may include a sole proprietorship, a law corporation, a limited partnership, a partnership or association of members or law corporations or a combination of both.  Arrangements where members share office space and certain common expenses, but otherwise practise as independent practitioners, are not considered firms.  Lawyers who are sole practitioners (including those who practise through law corporations) may share office space with other sole practitioners, with a group of associated lawyers or even with non-lawyers.  Lawyers may practise in arrangements that range from a relatively casual relationship among lawyers who maintain separate trust accounts, separate letterhead, separate signage and have only an address and a photocopier in common, to associations that appear for all intents and purposes as a traditional law firm with common letterhead, one website, a common domain name for e-mail, one sign on the door, shared support staff, and an agreement between the lawyers that they will not act for any parties adverse in interest.  In the latter case, to the general public, nothing distinguishes the “firm” from a traditional law partnership.

There are many reasons lawyers may choose to practice in alternative arrangements.  There may be certain economies for sole practitioners setting up under one roof, including maximizing any benefit of practising through a law corporation.  However, before you choose to practise in such an arrangement, there are certain things you should consider.

If the only thing that you want to share is space and not to be viewed as a firm, it is an excellent idea to advise your clients, in writing, that you are in an arrangement for sharing space only.  You should also advise that the other lawyers in the space-share (whom you should list) are free to act for others who are adverse in interest to your client.  You could do this in a form letter or in a standard paragraph you insert into your first letter or e-mail to your client.

You will need to take steps to make sure that, while space is shared, information isn’t.  You should institute a strict procedure so that no written communication (including mail, fax, courier package) is opened or capable of being read by anyone except your employees. This means you will need to have your own fax machine and fax number and that you should have a computer network separate from the other individuals sharing the office.  All of your legal files must be kept in secure cabinets.  Files cannot be left lying on desks or credenzas, and file cabinets.  Offices and work areas where client material is stored should be locked when you or your employees are not present.  E-mail accounts should be separate and passwords should not be shared.

All the people who work in the shared office premises (including non-lawyers and those employed by non-lawyers) should be briefed on lawyers’ professional responsibilities to maintain confidentiality.  Your employees must know that they cannot discuss clients matters with other people who work in the office.  You may even want to have your employees sign a confidentiality agreement.  If you are sharing a receptionist, take the time to make sure that the shared receptionist understands the importance of guarding client confidentiality.

It is also important that telephone conversations be kept confidential.  Particular care is required when a call takes place in a shared area (such as a secretarial station) or if the walls between offices are thin.

Notifying your client at the outset of the retainer of the nature of the space-sharing agreement may make it less likely that you will be named as a party to a professional liability claim against one of your fellow space sharers or, in any event, should make it easier to get the claim against you discontinued.

You may well find yourself named as a party in litigation.  Space-sharers are often shocked and dismayed to see themselves as co-defendants in a professional liability negligence suit.  When a lawyer practises in a conventional partnership, it is unusual for the lawyer to be named individually; generally, only the partnership is named.  Since it can be difficult to determine the relationship between lawyers in a space-share, it seems extremely likely that all the lawyers practising in an association or space-share will be named in litigation.

Whether you will be held vicariously liable for the negligent actions of the people next door may be a function of whether there was any holding-out or ostensible partnership upon which the client placed reliance.  If you want to remain separate for liability purposes, you have to take necessary steps, including practising under a separate name with a separate telephone number, letterhead, website and all the other indicia, to convince the Court that you really are a sole practitioner and not a member of a “firm”.

The Policy of Insurance covering lawyers in Saskatchewan defines a law firm as “two or more individuals who are, or appear to be, holding themselves out to the public as practising law together, whether or not a partnership exists in fact and regardless of the form or forms of business organization through which the practice is conducted.”  In the end, the space-sharing lawyer will be covered for the vicarious liability claim brought against him or her as a result of the actions of the negligent space-sharer, but there may be potential deductible consequences, in addition to the general trauma of being named as a defendant in litigation.

Another concern should be conflicts of interest.  Sole practitioners practising in a shared-space situation may not realize until well into a matter that a fellow tenant acts for a party adverse in interest.  The Courts show little reluctance to remove a lawyer from a file when another with whom he or she shares space – even in the most casual of arrangements – has previously been involved in the matter or has acted for one of the other parties.  Commentary [7] to Rule 3.3-1 of the Code of Professional Conduct warns space-sharing lawyers to consider whether a conflict would exist if two lawyers in association represent clients in opposite sides of a dispute.  The fact or appearance of such a conflict may depend on the extent to which the lawyers’ practices are integrated, physically or administratively, in that association.  Lawyers in space-sharing arrangements, for reasons of client confidentiality, cannot share with their fellow space-sharers information that would help to flag a potential conflict of interest.  However, the space-sharers might be held liable for the damage that results to clients or third parties from that conflict, or at the very least, be placed in a situation where they are removed from a file by the Court because of the conflict of interest.  Even the precautionary measure of advising your client that your co-tenant may act for adverse parties may not prevent your removal for the perception of conflict.  However, in a space-share “firm” operating as a firm with a common name, letterhead, etc., the authority of the client to divulge the information to other members of that firm is implied (Rule 3.3-1(a), Commentary [9] of the Code of Professional Conduct) thus allowing for conflict searches.

Another serious consideration for those in a space share are trust accounting rules.

Law Society Rule 910(3) requires a sole practitioner in a space sharing arrangement to maintain his or her own trust account and not deposit trust money into a trust account maintained by any other member or law firm.  In other words, lawyers are not permitted to share trust accounts when they are not members of the same firm.

This Rule acknowledges that in order to facilitate members in the practice of law, alternative practice arrangements such as space sharing, ought to be allowed.  However, allowing sole practitioners to share trust accounts increases the risk for errors and misappropriation and causes considerable confusion to the profession and to the public.  Therefore, a sole practitioner cannot deposit trust monies into a trust account over which he or she has no signing authority as the member would not have access and control over his or her clients’ funds.  Sharing a trust account effectively places clients at jeopardy for misapplications or misappropriations of trust funds by a lawyer with whom the client might not have any solicitor-client relationship.

The Law Society is not concerned with which vehicle you select to carry on your practice, but we do ask that you make a conscious decision on the subject.  Are you a member of a firm? Or are you a sole practitioner who merely has a common address with other lawyers?  If you choose to practise with other lawyers in a relationship that is something less than a full conventional partnership, you can have common letterhead, common signage and support staff who work for the whole “firm”.  We highly recommend that in such an arrangement, you set up a conflict of interest search system to avoid “firm” members acting for parties who are directly adverse in interest.

If you intend to maintain a totally independent practice, list only yourself on your letterhead.  Put up a sign in the reception area and on your office door that indicates that it is your law office.  Maintain separate phone lines, answered in such a way as to refute any connection, keep your clients’ names and information to yourself, and be sure to communicate the nature of your independent practice situation to your clients.

You can carry on practice in any format you choose, provided you take care to ensure that the manner in which you present yourself to the public, your clients, and other lawyers, reflects the reality of the arrangements you have made.

One thought on “Space Sharing: Liability, Trust Accounts and Conflict

    Sophie Barber said:
    June 14, 2018 at 10:59 am

    Interesting post! It’s true though – there are all sorts of arrangements you can have in the world of law, from going at it alone to sharing your space with others. It’s great to be prepared for all eventualities.

    Like

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