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Referral fees have been a topic of contention since they were first introduced back in 2004. Lawyers paying for the details of potential claimants is perceived by many to be ambulance chasing. Today, the Ministry of Justice (MoJ) unveiled plans to introduce an outright ban.
According to the Justice Minister Jonathan Djanogly the very existence of referral fees had contributed to the creation of a so-called compensation culture and had forced insurance companies to push up motor premiums.
Djanogly said in a statement: “Many of the claims are spurious and only happen because the current system allows too many people to profit from minor accidents and incidents. Referral fees are one symptom of the compensation culture problem and too much money sloshing through the system. People are being encouraged to sue, at no risk to themselves.”
This despite the Legal Services Board finding in May that referral fees were not detrimental enough to warrant an all out ban (27 May 2011).
It comes as part of a drive to push down rising legal costs, but whether it will facilitate access to justice, lawyers said, remains to be seen.
Volume giant Paribis Law senior partner Tim Oliver comments: “I’m afraid the MoJ is looking down the wrong end of the telescope. It is the fees charged by the law firms which they use to pay inflated referral fees that is the problem, not the referral fees themselves.”
The devil, as always, is in the detail and there isn’t very much of that about. It is not known when the ban will be implemented, how referral fees will be defined or who will police the ban.
“This announcement gives little away,” says Russell Jones & Walker joint head of litigation Simon Allen. “Whatever the outcome, there are bound to be winners and losers but until more is clarified it’s very difficult to say who they will be.”
Already the litigation system is under reform thanks to Lord Justice Jackson’s detailed investigation into what is driving high litigation fees.
In March the MoJ endorsed his proposals to do away with recoverable success fees, reverse after-the-event insurance provisions and cap success fees (The Lawyer, 29 March 2011). It stopped short of an outright ban on referral fees, but then the former Justice Secretary Jack Straw put them back on the government agenda (The Lawyer, 28 June 2011).
Lawyers are naturally divided in their response to the ban with defendant insurance lawyers welcoming it, while claimant lawyers say it will block access to justice for people with little knowledge of the legal system.
Nevertheless, it is here to stay and many in the claimant community will be assessing how best to address their model to help shore up the profit margin.