No.04 Receiving Referral Fees and Rule 12.4.3 Australian Solicitors Conduct Rules 2012

1. Introduction

1.1.  Who should read this Guidance Statement?

This Guidance Statement is for solicitors and law practices.

1.2. What is the issue?

This Guidance Statement identifies the ethical and other issues to consider where a third party offers to pay a solicitor a financial benefit (be it commission, referral fee, benefit in kind or any form of financial or non-financial remuneration) for the referral of a client to a third party.

A solicitor should not permit a solicitor’s personal interests to conflict with the obligation to act in the best interests of clients in matters in which the solicitor represents those clients (see Rule 12.1 of the Australian Solicitors Conduct Rules (‘ASCR’)). Other relevant fundamental duties include those a solicitor owes to the administration of justice (Rule 3 ASCR), to act in the best interests of the client (Rule 4.1.1 ASCR) and to avoid any compromise to their integrity and professional independence (Rule 4.1.4 ASCR).

1.3. Status of this Guidance Statement

This Guidance Statement is issued by the Queensland Law Society (QLS) Ethics and Practice Centre for the use and benefit of solicitors.

This Guidance Statement does not have any legislative or statutory effect. By having regard to the content of this Guidance Statement it may be easier for you to account for your actions if a complaint is later made to the Legal Services Commission.

This Guidance Statement is not legal advice, nor will it necessarily provide a defence to complaints of unsatisfactory professional conduct or professional misconduct.

This Guidance Statement represents a standard of good practice and is endorsed by the QLS Ethics Committee.

2. Ethical principles

2.1. Rule 12 Australian Solicitors Conduct Rules

There are important ethical issues to consider in circumstances where a third party offers to pay a solicitor a commission or benefit for a referral of a client. As fiduciaries, solicitors cannot permit a conflict between their duty to serve the best interests of a client and their own personal interests (see Rules 12.1 and 12.2). The receipt of a financial benefit from a third party creates a potential for such a conflict. 

Rule 12.4.3 permits a solicitor to receive a financial benefit or commission but only if disclosure is made and the client’s informed consent is obtained. A solicitor must satisfy not only the rule’s requirements but also the solicitor’s fiduciary obligations.

2.2. Informed Consent

The client’s informed consent must be based on appropriate disclosure by the solicitor which is required to be made before the benefit is paid to the solicitor by a third party.

Although there is no precise formula for determining if fully informed consent has been given,^[1] there must be ‘full and frank disclosure to the client of all information known to the solicitor which the client should know’.^[2]

At a minimum, the following information must be provided to the client:

1. The amount of the commission or benefit to be paid;
2. What the solicitor must do to obtain the benefit;
3. How receipt of the commission or benefit may create a conflict of interest;
4. Any potential disadvantage to the client arising from the arrangement;
5. That the client can use an alternative solicitor who does not have a conflict in the duty of loyalty; and
6. The client can seek independent legal advice.

Both the disclosure and consent should be evidenced in writing, which should record the disclosures made and the facts and advice taken into account by the client in giving the consent. On many occasions, it will be necessary to advise the client to obtain independent advice.^[3]

Solicitors should also consider their professional indemnity insurance and whether the referral arrangement may engage an exclusion.^[4]

3. Statutory prohibition

Queensland legislation prohibits any person (including a solicitor) from giving or receiving consideration for a claim referral or potential claim referral and approaching or contacting a person and soliciting them to make a claim for personal injuries. Criminal penalties apply.^[5] 

4. More Information

Solicitors are referred to The Australian Solicitors Conduct Rules 2012 in Practice: a Commentary for Australian Legal Practitioners, Queensland Law Society.

See also Guidance Statement No. 3 – Paying Referral Fees and Rule 12.4.4 ASCR.

For further assistance please contact an Ethics Solicitor in the QLS Ethics and Practice Centre on 07 3842 5843 or ethics@qls.com.au.

Updated 19 November 2024 

^[1] Hartnell v Birketu Pty Ltd [2021] NSWCA 201, [48]; Maher v Millennium Markets Pty Ltd [2004] VSC 174, [76].

^[2] McLaren v Wiltshire [2019] QSC 305, [32C]; Law Society of New South Wales v Foreman (1994) 34 NSWLR 408, 435-6 per Mahoney JA cited with approval in Re Morris Fletcher & Cross’ Bill of Costs [1997] 2 Qd R 228; Council of the Queensland Law Society Incorporated v Roche [2004] 2 Qd R 574.

^[3] Legal Services Commissioner v Reid (No 3) [2017] QCAT 471, [65].