Lawyers back Jack Straw's bid to ban referral fees
Personal injury lawyers have applauded former justice secretary Jack Straw’s calls to ban referral fees, saying the practice does not benefit law firms or their clients.
Jack Straw
Earlier this week, Straw spoke out against the practice of insurance companies selling customers’ details to law firms in exchange for a fee. This morning justice minister Jonathan Djanogly said the issue would be addressed in the second reading of the Legal Aid Bill tomorrow.
Djanogly suggested that addressing the question of conditional fee arrangements would go some way to dealing with referral fees.
Earlier this year the Legal Services Board (LSB) recommended more stringent transparency measures over an outright ban on referral fees, following a detailed review (27 May 2011).
This week lawyers said the Legal Aid Bill was possibly not the right forum to tackle the problem as legal aid does not cover personal injury claims - the type of work normally related to referral fees.
Personal injury specialist Des Collins of Des Collins Solicitors said he “heartily endorsed” the stance taken by Straw. “Restrictions on referral fees would help the legal profession, it would help the public,” Collins said.
Russell Jones & Walker’s (RJW) co-head of personal injury Paul Kitson said he had “some sympathy” with calls to stamp out referral fees.
“I think it’s probably gone a bit far; there’s some fairly shabby practices taking place,” Kitson said.
Kitson said the provision of details by some insurance companies and the payment of referral fees had fuelled the existence of “claims factories”. He said RJW’s own bulk claims handling business, Claims Direct, was a different model built on panel arrangements with solicitors.
However not everyone agrees with a ban. Stuart Henderson, personal injury head at Irwin Mitchell, said the firm supported the LSB’s proposals rather than a ban on fees. “These are legitimate business arrangements between big institutions and law service providers,” Henderson said.
He added: “I’d be surprised if the government has the appetite to ban or cap referral fees.”
The issue of referral fees arose in Lord Justice Jackson’s review of litigation funding, but contrary to many expectations it was not addressed in the recent Justice Bill. Collins suggested that dealing with the problem as an amendment to existing legislation was akin to introducing changes “on the quiet”, although he thought banning the practice through legislation would serve to stamp it out.
Kitson said he favoured an approach that would see better policing of existing codes, such as rule 9 of the Solicitors’ Code of Conduct. This requires solicitors to disclose to clients the amount of any referral fees paid.
Any legislation banning referral fees would render the rule obsolete.
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Readers' comments (12)
Anonymous | 28-Jun-2011 4:17 pm
Funny that Jack Straw's coming out with this now - it's hardly a new issue and he could have dealt with it when Labour were in power.
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Anonymous | 28-Jun-2011 4:47 pm
The reason Irwin mitchell doesn't agree with a ban is because it trades in these claims and makes a healthy profit from them. After it becomes a ABS this selling and buying will become more prominent. If it wants its say, it should declare an interest
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Anonymous | 28-Jun-2011 4:51 pm
Straw did raise it when he was in power, but became overly obsessed with reforming the personal injury market. Now he is on the wrong side of the house there is nothing stopping him speaking out.
Insurers aren't the only ones to profit from the fees, I suspect there are a few unions which keep afloat using them by selling claims to their firms... Thompsons for instance. It has to buy the claims to get to the claimant.
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ANITA | 28-Jun-2011 4:58 pm
not a good idea to ban the refferal fees.This should not be of Mr Straw's interest how the solicitors get their clients as long as it is with compliance with the rules. However the clients should be well informed about the amount the solicitors pay to referers.
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Kevin | 28-Jun-2011 5:57 pm
Why stop at banning refeferal fees? Why not abolish the insidious tort of Personal Injury itself?
Some enlightened jurisdictions have a no fault compensation system. If you are injured in an accident why on earth should you have to find a suitable candidate to sue and then wait on the outcome of a court decision?
Abolish the tort itself-everyone gains except PI lawyers and I am sure they can be retrained.
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gocompensate.com | 28-Jun-2011 9:39 pm
We recognised that there was a gathering storm in relation to referral fees and launched an alternative business model in January this year.
Now with many of the UK leading names in personal injury and medical negligence signed up to our model we have created a credible and ethical alternative to claims management companies and the referral fee industry.
Limiting the panel to just 5 law firms per county and further restricting membership to just accredited law firms has created a panel of true quality throughout the UK.
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Anonymous | 29-Jun-2011 8:54 am
Kevin, considering that we are on the comments page of The Lawyer, I feel it is my duty to point out to you that personal injury is not a tort.
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TWP | 29-Jun-2011 9:00 am
Nothing has done more to damage and undermine the public's opinion in the law than claims management companies funded by referral fees.
I appalude this decision and look forward to their outright ban.
I'm sick of the ABI being on their high horse talking about personal injury solicitors making money from claims and raising insurance prices and then selling billions of pounds worth of claims to them. Bravo!
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Anonymous | 29-Jun-2011 1:30 pm
To anonymous @ 8.54am ... PI is an action derived from negligence, which stems from a breach of duty - a tort, so let's not split hairs shall we!!
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straw dog | 30-Jun-2011 10:49 pm
Straw is a joke. When is he going to retire? There's no point banning referral fees because they will just find a way round it like a general retainer or use an abs model to take the work in-house. Retire Jack. You aren't in power any more. Labour lost the election.
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