MPs last night rejected a bid by former justice secretary Jack Straw to make paying referral fees in personal injury cases a criminal offence.
Debated during the report stage of the Legal Aid, Sentencing and Punishment of Offenders Bill, they voted 302 to 208 against Mr Straw’s amendment to the government’s plan to make the ban on referral fees a regulatory offence.
Mr Straw told the House of Commons: “There are many other areas of regulation, including, for example, of financial institutions, when conduct that is in clear breach of regulations leads to both a fine or penalty by civil regulatory requirements and a criminal offence.”
Mr Straw also suggested that the Office of Fair Trading – whose pressure drove the Law Society to end its ban in 2004 – “is deeply embarrassed by the position that it took in 2004. In no sense could it be said that referral fees encourage fair trading. They are essentially a fraud on the consumer”.
He continued: “The other body that should examine its processes is the Legal Services Board. I accept readily the reason why the Secretary of State felt obliged to wait for its consideration of referral fees, but its consumer panel released the most extraordinary report stating that referral fees worked in the public interest. If we examine the basis of its research, we find that a third of the people whom it surveyed had received compensation for things like whiplash.”
He was supported by Labour justice spokesman Andy Slaughter, who accepted the government amendments “as far as they go”, but described them as insufficient and “riddled with incosistencies and loopholes”.
He was scathing over the get-out in the ban that allows payments that are “consideration for the provision of services”.
“The minister’s impact assessment explains what that means. Claims management companies may adapt their business models so that they are not reliant on referral fees paid by lawyers, or they may move into alternative types of business such as marketing or advertising.
“That is staggering to those of us who recognise that it is precisely that marketing and advertising, whether on daytime TV adverts or via spam messages, that lead to perceptions of a compensation culture.”
Mr Slaughter also expressed hope that the clause would be toughened up by amendments in the House of Lords.
However, justice minister Jonathan Djanogly responded that “capturing an agreement to pay referral fees when payment might not have occurred would be very difficult to enforce”.
He said: “We considered the matter carefully but believe that creating a criminal offence would be a very blunt instrument in this case. One would have to prove beyond reasonable doubt that consideration had changed hands for the referral of a potential claimant, but the grounds for determining whether something was or was not a referral fee could be blurred.
“It would be very difficult to convict in many cases on the basis of the complexity of those arrangements. That is why we consider a regulatory offence to be more appropriate, whereby the principle of what is happening can be looked at by the regulator and a view can be taken.”
He added that the Association of British Insurers had said it hoped that the ban, when combined with the other Jackson reforms in the bill, would lead to a fall in insurance premiums. “I certainly hope that that is a credible position,” he said.