Referral fees will be banned in personal injury cases by virtue of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO). Sections 56 to 60 of LASPO make it a regulatory offence to pay or received referral fees in personal injury cases.
Rules against referral fees
Section 56 states that a regulated person in in breach if prescribed legal business is referred to the regulated person, and the regulated person pays or has paid for the referral.
“Prescribed legal business” involves the provision of legal services which relate to a claim or potential claim for damages, or any other claim, for personal injury or death
Effect of Section 56
Section 57 outlines the effect of a breach of the ban. A breach of Section 56 does not make a person guilty of an offence and does not give rise to a right of action for breach of statutory duty. A breach will not make anything void or unenforceable but a contract to make or to pay for a referral or arrangement will be unenforceable.
Any breaches of the ban will be subject to appropriate regulatory action by the relevant regulators, the SRA, FSA, the Bar Counsel and the Claims Management Regulator.
The SRA has consulted on proposals for implementing the ban on referral fees and the consultation period ended on the 18th December 2012. The SRA has stated that an analysis of responses is in progress. More information on the SRA consultation can be found at http://www.justice.gov.uk/downloads/claims-regulation/sra-referral-ban.pdf
Section 57 does allow for certain payments to be made, where that payment was made “as consideration for the provision of services, or for another reason, and not as a referral fee.”
As the SRA has acknowledged that there will be difficulty in establishing whether the payment is for the referral, particularly where the introducer is providing services to the solicitor, such as marketing or other claims management activities.
Whilst the ban is aimed at tackling what has been labelled the “compensation culture”, it has been questioned whether the ban will in fact limit people’s access to information and help. Without referral fees, there will be less advertising and potentially a complete loss of specialist claims management companies. Without such companies and advertising, it will fall to the Solicitors themselves to ensure their services are adequately advertised.
It is thought that the ban will lead to an increase in the cost of BTE Insurance cover because prices have been depressed over recent years, due to insurer’s income being supplemented by referral fees.