Lawyers back Jack Straw's bid to ban referral fees

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.