The death of referral fees?
Date: 16 September 2011
Authors: Dominic Regan
Issue: Vol 161, Issue 7481
Categories: Opinion, Fees, Personal injury
The payment of referral fees in personal injury cases is to be banned. Yet again Lord Justice Jackson has got what he wants. This may presage other seismic shifts.
The position in Whitehall in the summer of 2010 was that solicitors who wanted to spend their money to secure work should be free to do so. In his report Common Sense, Common Safety last autumn
Lord Young identified concerns:
- Those who paid out the most got the most.
- A firm handing out these fees got one hundred times more cases than those who didn’t pay fees.
- There was no correlation between payment and quality of work. Indeed, the higher fee remitted meant that the balance left to cover the cost of doing a proper job for the client was severely diminished.
Earlier this year the Legal Services Board published a report suggesting that since claimants were not bothered about these fees (which were borne by their own solicitor) we should leave be and have another look in 2013 (see Referral fees, referral arrangements and fee sharing). This torpid publication failed to meet the trenchant criticisms made by Jackson LJ, which are shared by many solicitors as I witnessed on a Sir Rupert roadshow in 2009.
Why the change of heart? The government was rattled, that is why. Jack Straw, the man who established the claims management regime, disingenuously protested about referral fees, rich since they thrived on his watch. The Times gave him a prominent platform and Axa, an insurer not addicted to referral fees unlike some other big name insurers, renounced the selling of claims altogether.
Then the Daily Mail came onto the scene. The road traffic lawyer John Spencer gave them a two-page interview in which he described the schemes and scams which now inhabit the crooked world of cash for crash (8 June 2011). Put this in the context that there are 31 million car owners in the UK. Road traffic premiums have jumped 40% in the last year. An off the record briefing last Friday intimated that banning fees would cut the cost of insurance by £150 a year, the equivalent of a 1p cut in the basic rate of tax.
Expect the ban to coincide with Jackson implementation, destined for next year. That said, there is going to be some intriguing in fighting in the days ahead. How does one even define a referral fee? The government press notice issued at midnight last Thursday said, accurately, that there is no universally accepted description. What of payments in kind rather than hard cash? Tom Jones at Thompsons told me that his firm gives support, often in the form of free legal advice, to charities which cater for those suffering from industrial diseases. Unsurprisingly, clients are directed towards a firm that knows what it is doing. The giving of such support generates a referral in as noble a manner as I can think of.
Intervention
A highly placed judge suggested to me last week that the involvement of the criminal law in road traffic litigation is long overdue. He was not talking about crooked claimants who stage collisions for gain but the insurers, garages and lawyers behind many claims which are based on a genuine collision. Misrepresentation of repair charges and the like is a naked attempt to defraud and a conspiracy to pervert the course of justice.
There are two sides to every story. One solicitor on the south coast told me that without the ability to purchase cases their injury department would collapse. According to The Times on 10 September 2011 the insurer Admiral, a company with a decent record for pragmatism in handling claims, derives 6% of its profits from referral fees.
A few law firms issued an angry attack on the proposal, claiming that it would not bring down the cost of insurance, an assertion I suspect would have Sir Rupert shuddering. The introduction of a level playing field is something he thinks beneficial plus he has made the wry observation that claimants (somehow) found legal representation prior to the legitimisation of referral fees in March 2004!
Amid all the froth about alternative business structures there does now arise one serious possibility: might not a claims management company (CMC) overcome the ban by buying the firm it sold the cases to? It would then direct cases it acquired to itself. Some CMCs have already contacted solicitors to assert that they will be untouched by the ban. Fees will be called marketing or advertising charges instead.
A final word of warning for those rash enough to say that banning referral fees will not bring down the costs of road traffic litigation. Some solution is necessary and one certainty is fixed costs. I can think of another measure which would be both guaranteed to reduce costs and overnight destroy the vast majority of injury firms in business today. Increase the small claims personal injury limit to £5,000. You could keep referral fees then for no-one would ever pay out that which they could never recoup. No costs, no referral fees and, oh yes, no solicitors. Is that what they want? It is what they might get. Relent.
Note how the government capitulated in the light of public opinion here. Exactly the same thing could happen to the proposal to remove legal aid from clinical negligence. That battle has yet to start. It will.
Professor Dominic Regan has been helping Lord Justice Jackson & His Honour Judge Simon Brown QC with costs reform. With thanks to John Spencer & Rosario Bavetta. All thoughts are the author’s own.
E-mail: krug79@gmail.com Website: www.profdominicregan.blogspot.com
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