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Government lays out how it will ban referral fees


Parliament: referral fee debate next week

The government has set out how it intends to ban referral fees in personal injury, but has included a get-out if the payment is made “as consideration for the provision of services”.

Justice secretary Ken Clarke has laid amendments to the Legal Aid, Sentencing and Punishment of Offenders Bill that will be debated next month. They allow the Lord Chancellor to ban referral fees in other areas of practice by regulation.

The draft rules require regulators – specifically the Law Society, Bar Council, Claims Management Regulator and Financial Services Authority (reserving the power to add others) – to monitor and enforce the restrictions imposed.

The amendments specify that breach of the new rules would not constitute an offence or give rise to an action for breach of statutory duty; a breach would make the contract to make or pay for a referral unenforceable.

Though justice minister Jonathan Djanogly said last week [2] that the government is looking at how to bring unregulated persons within the ambit of the rules, for the time being they just relate to the actions of regulated persons in either paying or receiving referral fees.

A referral is defined as occurring “if (a) a person provides information to another, (b) it is information that a provider of legal services would need to make an offer to the client to provide relevant services, and (c) the person providing this information is not the client”.

Payment includes “any form of consideration” except the reasonable provision of hospitality.

The draft rules catch a regulated person who pays or is paid for arranging for someone else to provide services to the client; however, the regulators will be allowed to stipulate that such a payment is not a referral fee if the regulated person can show it was “consideration for the provision of services or for another reason”.

The Lord Chancellor will have the power to make regulations setting the maximum amounts for such payments, above which they would be treated as referral fees.

Mr Clarke said: “Until now, middle-men have been able to profit from selling personal injury claims on to solicitors for a fee. So, of course, they encouraged people to sue as a first, rather than last option. We all ended up paying through higher prices and insurance premiums.

“Our ban on referral fees together with our changes to ‘no win, no fee’ arrangements will reduce legal costs and speculative suing, so that businesses, schools and individuals can be less fearful of unnecessary claims encouraged by those looking for profit rather than justice.”

Read the amendments in full here [3].