Jackson assessor casts doubt on likelihood of referral fee ban

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By Legal Futures

28 April 2010

Jackson: referral fee ban call

One of Lord Justice Jackson’s own assessors has cast doubt on the likelihood of the judge’s recommendation that referral fees be abolished actually happening, it has emerged.

The recommendation was discussed at the Senior Courts Costs Office’s costs practitioners group meeting in March, and recently released minutes of the meeting noted insurers’ argument that referral fees are a major factor in hourly rates being so high – although Law Society representative Martin Heskins observed that since “high” hourly rates pre-dated referral fees, there had to be doubts about this argument.

The minutes continued: “Master Hurst [the Senior Costs Judge and Jackson assessor] said that the reality was that there may be little that could be done about abolishing referral fees in any event.”

The news comes as two reports on referral fees are expected next month. The Ministry of Justice’s Advisory Committee on Civil Costs has been investigating whether referral fees inflate the guideline hourly rates, and its chairman, Professor Stephen Nickell, told Legal Futures today that the report has been completed. However, it cannot be published during the election because of the traditional purdah period – he hopes it will be as soon as possible afterwards.

Also, the Legal Services Consumer Panel is scheduled to deliver its report on referral fees in the second half of May. Professor Nickell said he had provided the panel with a copy of his findings.

In an interview with Legal Futures Editor Neil Rose late last year – published in Costs Lawyer magazine – Professor Nickell explained that the committee had held meetings with stakeholders and was carrying out an analysis of the published accounts of claims management companies (CMCs) to determine whether they are making excessive profits. The committee was also critically examining research commissioned by the Association of British Insurers last summer which argued that fees could be reduced without reducing access to justice.

In the interview, Professor Nickell said the committee had to determine “whether CMCs are just leeches on the profession or whether they perform a socially useful function”. The academic said he had some sympathy with CMCs in that he can see the argument that they facilitate access to justice. He added that he understood the contention of personal injury solicitors that their businesses would not work without CMCs, and that CMCs are preferable to “advertising in the Yellow Pages and waiting for someone to walk in”.

He was also sceptical of the notion that CMCs would not exist if the guideline hourly rates were not so high – referral fees are paid in other areas of law to which the rates do not apply, he noted.

Meanwhile, Lateral Law, run by solicitor Martin Gregory, has launched a national referral network for solicitors to refer work to other solicitors. Firms access the service, www.solicitorsreferrals.co.uk, by paying an annual registration fee of between £250 and £750 depending on the size of the practice; there are no fees for individual cases.

Mr Gregory said: “Throughout my career, I have often wondered why solicitors rely so much on third parties, particularly when it comes to seeking new work and recruitment.” He explained that the purpose of the scheme was to keep money within the profession and enable solicitors to generate an income stream from cases they would otherwise turn away.

The site points out that the rules on fee-sharing and referral arrangements do not apply to intra-solicitor referrals like this.

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