The government has secured an amendment to the Criminal Justice and Courts Bill banning inducements for personal injury claims offered by unregulated third parties linked to law firms.
Lord Faulks, the justice minister, told the House of Lords that there had been “widespread support” for the ban on offering inducements and the government was concerned to make it “as effective as possible”.
Speaking during the bill’s report stage yesterday, he said that, having reflected over the summer, he agreed with Conservative peer Lord Hunt of Wirral that the government “should seek to prevent regulated persons avoiding the ban by offering inducements through third parties”.
The justice minister said there were concerns that “it is now increasingly common for solicitors to operate as part of larger groups of companies, or to have subsidiary or linked companies offering services alongside them”.
He went on: “Those subsidiary or linked companies are not always regulated, and it would be relative easy for, say, a solicitor simply to route an inducement through an unregulated company, thus avoiding the ban.
“For the avoidance of doubt, I add that we do not wish to regulate third parties, only to prevent regulated persons from avoiding the ban by offering an inducement via an unregulated subsidiary or a linked business or individual.”
Lord Faulks said anecdotal evidence showed that the practice of offering inducements was “more prevalent among solicitors than non-regulated persons”. Claims management companies are already banned from offering inducements.
The justice minister said that once lawyers were banned from offering them, there was “a possibility that non-regulated persons offering inducements to issue claims with legal services providers will be used as a way around the ban”.
Lord Faulks said third parties who might want to offer inducements could include people working in “first notification of loss teams”.
He said the teams were used by insurers as the central point that clients contact when they wished to make a claim on their insurance policy.
“The intention is to ban any inducement which encourages or might have the effect of encouraging a person to make a claim or seek advice about making a claim, including so-called welcome payments, free gifts and cash advances.”
The government’s amendment was agreed by the House of Lords.
Earlier in the debate, Lord Faulks announced that the government was rewording a previous amendment to clarify the costs implications of its new rule against “fundamental dishonesty” in personal injury claims.
Lord Faulks said this provided that “when assessing costs in the proceedings, a court which dismisses a claim because of the claimant’s fundamental dishonesty must deduct the amount of damages that it would have awarded to the claimant from the amount of costs which it would otherwise order the claimant to pay in respect of the defendant’s costs.
“The intention underlying this provision is, as I have previously explained, to ensure that claimants are not excessively sanctioned by both losing the genuine element of the award of damages and having to pay the defendant’s costs, without any credit for what the defendant has saved by avoiding payment of the genuine element of the award.”
Lord Faulks argued against an amendment tabled by Lord Hunt which would have extended the fundamental dishonesty rule to associated claims involving credit hire or damage to property. Lord Hunt withdrew the amendment.