When it comes to referral fees, I find myself champing at the bit for a quickening in the pace of reform, and yet, having reflected further on the Ministry of Justice’s recent announcement that referral fees in PI claims are, at last, to be banned, mindful of the need to cover all bases. Moreover, consideration of some of the finer points arising from referral fees reveals that while a ban is welcome, there is still a way to go.
Take, for example, the definition of a referral fee. At present this is conspicuously absent from the Solicitor’s Conduct Rules. Lord Justice Jackson, in his Review of Civil Litigation Costs, proposed that a referral fee is "any form of payment or other consideration to a party for introducing clients to a solicitor". His Lordship expressly suggested that this should be subject to input from the Solicitors Regulatory Authority (SRA) and the Legal Services Board (LSB).
It seems to me that Jackson LJ’s definition is a good starting point. We need it because, if we are to stamp out what his Lordship described as an “abhorrent” practice (ie, the endemic paying of referral fees), we need to be clear about what is, and what isn’t, a referral fee. It is to be hoped that the two professional bodies to which Jackson LJ referred revert to him speedily, and certainly rather quicker than has been possible with the SRA and the licensing of Alternative Business Structures (ABSs).
ABSs were much trumpeted following the passing of the Legal Services Act 2007, given that they will revolutionise the way in which solicitors run their businesses. The Legal Services Act allowed non-lawyers to own and invest in law firms, and the ABS regime was due to come into play on October 6th. Many have lamented delays in its implementation, the latest of which the SRA currently attributes to the ‘parliamentary timetable’. Now, it seems, the SRA has been given the green light to be the licensing authority for ABSs, but as Professor Stephen Mayson notes on his blog: “We have had more than six years since Sir David Clementi first proposed [ABSs]. They are not a new idea; and it’s not as if no-one has spent any time thinking about both the principles and the detail since then... Where have these members [of the legal profession] been for the past six years?”
That aside, there is another significant issue with regard to ABSs – one which means that the delay understandably criticised by Professor Mayson might be a blessing in disguise. The fact is that ABSs are Trojan horses in the battle against referral fees. They enable insurers and claims management companies to own and invest in law firms, thereby circumventing efforts by the Ministry of Justice to rid us of referral fees and what the government condemns as ‘compensation culture’ – because insurers and claims management companies could be handling PI claims from start to finish.
There’s more, too. What of the raft of ancillary payments made by those outside the legal profession, even once the ABS regime is in place - the likes of garages, reporting engineers and towing companies? These bodies all habitually pay referral fees, thereby fuelling a vicious circle which ultimately means that accident victims’ claims may be handled by inexperienced, non-expert lawyers – and meaning that drivers’ insurance policy premiums endlessly increase.
It all adds up to a situation calling for reform, but reform done well. A little delay, so that we can think through all the issues properly, may be no bad thing. Or, as is said of another sphere of life to which most of us can relate: ‘marry in haste, repent at leisure’.