The Law Society of South Africa prescribes strict guidelines to their members as to how their services can be marketed to potential clients in securing professional work. This is to ensure that clients can rely on receiving good quality independent legal advice from members of the profession. Clients should be able to choose their attorneys without any interference or pressure from other role players who might have an interest in referring work to a certain attorney.

In a competitive property market, attorneys are constantly under pressure to market their services to sellers, estate agents and banks in order to secure conveyancing work. Estate agents are active role players in these markets and have direct contact with prospective sellers. It is therefore common practice for legal firms to market their services to estate agents with the anticipation to be recommended as conveyancing attorneys on a successful sale.

As part of these marketing activities, some legal firms enter into marketing agreements with estate agencies in terms whereof the estate agency undertakes to promote and market the legal firm by for instance including the firm's name on the agency's advertising material and distributing informative brochures in exchange for the payment of an agreed marketing fee. Although these types of agreements are not in essence prohibited by the Law Society, parties should be very careful that the agreement as well as the implementation thereof is not in contravention of rules of the Law Society and that the interests of clients are always protected.

In an as yet unreported judgment by Desai J in the High Court of South Africa (Cape of Good Hope Provincial Division) delivered on 9 June 2005 these types of marketing agreements came under the spotlight. Erasmus J concurred with this judgment.

The respondent in this case was a director of a prominent law firm in Cape Town. In an application for his suspension from the roll of attorneys, The Law Society of the Cape of Good Hope (the "applicant") alleged that he contravened Rule 14.6.1.1 of the Law Society Rules by entering into a scheme in terms whereof payments were made to certain reputable estate agencies to secure conveyancing work for his firm.

Rule 14.6. provides as follows:

“14.6 Sharing of fees

14.6.1 A member shall not, directly or indirectly, enter into any express or tacit agreement, arrangement or scheme of operation, the result or potential result whereof is-

14.6.1.1 to secure for the member professional work solicited by an unqualified person; ….”

The respondent admitted to payments being made to estate agents, but argued that the payments were made as fair and reasonable remuneration for services rendered in terms of marketing agreements between the respondent and two estate agencies. These marketing agreements provided that a "suitable consideration calculated on commercial principles" would be paid by respondent's firm to the estate agencies for promoting and marketing the respondent's firm.

The question which had to be decided by the court was whether the marketing agreements in question resulted in, or had the "potential" to result in estate agents making recommendations to clients to use the respondent's firm in property transactions.

The evidence before the court showed that the amounts paid in terms of the marketing agreements were based upon the number of transfers referred to the respondent's firm. By ensuring that the respondent's firm receives more conveyancing instructions, the payments in terms of the marketing agreements to the estate agency increased, thus giving them an incentive to refer work to the respondent's firm.

The court also considered the fact that the respondent did not give any evidence as to whether the estate agencies did in fact deliver the marketing services as was provided for in the marketing agreements.

Although there was no direct evidence that professional work was ".solicited by an unqualified person;.", the court inferred from the available evidence that the agreements had in fact resulted in the respondent's firm securing professional work solicited by the said agencies.

The wording of Rule 14.6.1.1 is set in very wide terms. The court therefore found that the said marketing agreements cannot be viewed in isolation. The way in witch the agreements was implemented as well as the effect that the agreements had on the parties should be taken into consideration in determining whether a member "directly" or "indirectly" entered into "an arrangement" or "scheme of operation". It is not necessary to prove that the marketing agreement in fact resulted in the solicitation of conveyancing work. It is sufficient to show that the agreements had the "potential" of incentivising the estate agencies to refer work to the respondent's firm.

The court found that the best explanation for the evidence before it was that the estate agencies invited their clients to refer their conveyancing work to the respondent's firm. Judge Desai referred in his judgment to the argument by the applicants that the payments to the estate agencies improperly influenced estate agents to refer work to a particular attorney, undermining the freedom of the client to appoint the attorney of his choice. In the result, the respondent was suspended from practising as an attorney for a period of two years.

For a copy of this interesting judgment send an e-mail to una@legaledge.co.za

Written by:

Una Du Toit