Tuesday, 9 July 2013

Is The PI Referral Fee Ban Working?

Just over 3 months have elapsed, at the time of writing, since the PI referral fee ban was introduced courtesy of ss56-60 of LASPO 2012.

 It is a matter of great doubt whether anyone reading this article really thought that referral fees would die away entirely when April 1st came around. PI lawyers and CMC owners are nothing if not inventive and it was never in doubt that some forms of referral fees would continue – albeit that they would be re-branded as ‘recommendation fees’, ‘agency fees’ or some other such title that does not include the word ‘referral’ in it.

Prospective ABS’s were not, we were told, likely to be granted licenses if it appeared that they were solely designed to get round the ban. So presumably the SRA are perfectly happy that those to whom they have granted such licenses are not acting in a manner which would suggest that they were set up with the sole purpose of circumnavigating the ban.

For everyone else, what is the current situation? In the lead up to April 1st and since then, there have been many pronouncements from CMC’s, in particular, via social media, publicising the fact that they ‘have found a solution to the referral fee ban’. Without going into great detail about the ‘solutions’ that are on offer, what can be said is that some involve quite complex paper trails between the various parties to the ‘solution’  – a mixture  of solicitors, CMC’s, a client and a form of marketing company or some other party. Other ‘solutions’ involve the referrer passing the prospective personal injury client on to the solicitor by way of a ‘hot key’ transfer – with no information being passed on by the referrer to the solicitor directly, presumably in an attempt to avoid falling foul of s56 (5) (b) of LASPO 2012 (referral of prescribed legal business). These are but two of the types of ‘solution’, ‘scheme’ or ‘arrangement’ that have come to the writers attention. There are doubtless a good number of others.

Whether any of these ‘solutions’ will pass muster with the SRA or the MoJ, remains to be seen.

What is apparent is that whilst there was a definite mood of bullishness (‘it will be business as usual’) among some claimant solicitors and CMC’s alike in the run up to the ban, that bullishness has been replaced with a much greater degree of cautiousness . There is a sense that many are waiting to see what the others do before making their own moves (if any) and with good reason.

The SRA published a 31 point set of guidance notes on the 25th March on its website at: http://www.sra.org.uk/solicitors/code-of-conduct/guidance/guidance/Prohibition-of-referral-fees-in-LASPO-56-60.page

The guidance notes set out some examples of the types of ‘solution’ that may or may not lead to a breach. In the examples contained within the guidance notes, the ‘may’s outnumber the ‘may not’s’ considerably and throughout the notes the SRA’s stance is made consistently clear – any payment made in relation to a personal injury claim will be considered to be a referral fee unless the solicitor can prove otherwise. In other words, if it looks like a referral fee, sounds like a referral fee and smells like a referral fee, the SRA will consider that it is a referral fee and if it comes to the attention of the SRA it will be for the solicitor to prove to the SRA or perhaps more likely, the SDT that it is not a referral fee. It will be a brave solicitor who wants to be one of the test cases to have to argue before the SRA/SDT why he or she believes that his or her particular ‘solution’ does not breach the ban!

To an outsider looking in, it must seem insane that any solicitor worth his or her salt would even consider making a payment for a PI claim under any circumstances, however the referral and payment were packaged or re-branded  given that the burden of proving that the payment is not a breach of s56 weighs so heavily on the solicitor’s shoulders via OFR (Outcomes - Focused Regulation).

The problem for many firms of solicitors is that they have become so wholly reliant on paying referral fees for all, or most, of their PI work that they are not used to obtaining work via any other media and have never before undertaken any other real form of marketing of their own. Perhaps some really did think that, despite the writing having being on the wall from as long ago as since the beginning of 2012 at least, that ‘J day’ as April 1st became known amongst PI lawyers, was never going to happen. For those solicitors, cutting the umbilical cord of 'paid for' PI  referrals from CMC’s and the like was always going to be extremely difficult and potentially terminal to their businesses. Hence the reason that a number of solicitors seem prepared to take the risk of attempting to see if there is a way round the referral fee ban, even if it is a risk that is fraught with danger.

Those firms that some time ago decided to do away with the referral fee model, re-organised their businesses (including where necessary, downsizing their firms) and started to market for work themselves as opposed to relying on ‘paid for’ referrals, and indeed those who chose never to go down that route at all, must be giving themselves a pat on the back. It will only be a relatively small ‘pat’ – there are still plenty of other challenges ahead given the onerous nature of the other reforms already in place, those due to come in soon and those still to be decided upon, with, amongst the latter group, the raising of the small claims personal injury limit to £5000 or more, the one perhaps giving the most cause for concern for claimant PI lawyers.