SRA Consultation On Referral Fees

Oliver Gardner Of Howards Solicitors Manchester Explains The Issues Surrounding Referral Fees In The Legal Sector

It strikes me that there are a number of issues:

Firstly, there is the straight forward simple payment of what we all recognise as a referral fee:

It is a payment, usually but not limited to, in monetary form by one party to another in return for the transfer of business from the party receiving the payment to the party effecting the transfer.

Some people might call this a bribe but I am not entirely sure that is necessarily fair. The law relating to the payment of bribes has recently been strengthened and updated (insert link to law) and whether they amount to a bribe or not, referral fees are already prohibited in some arenas.

In Criminal Defence practice and in any other type of case attracting a fee payable by legal aid, the payment of a referral fee is prohibited. The SRA is consulting on a relaxation of this rule.

Some of the arguments and my take on them are as follows:

It is argued that the payment of a referral fee somehow affects the objectivity of the lawyer. This is unlikely to be the case in the majority of instances and will only really apply in the extraordinary case that the person making the referral has some sort of vested interest in the outcome of the case.

Compare however to the case of a conveyancing practice where referral fees are allowed and are often paid by lawyers to the estate agents whom refer the work. In such instances the estate agent who provides the lawyer with his/her work does have a vested interest in the outcome (most agents only get paid if the sale goes through) and therefore the scope for undue influence upon the lawyer (fearful his workflow might dry up if he upsets his referrer) is significant.

The anomaly that provides for one type of lawyer to pay a referral fee when another cannot makes no sense to me.

I can understand the argument that legal aid lawyers ought not to have the extra funds to pay referral fees (they are of course paid by the tax payer) but at the same time if referral fees replace advertising budgets then what is the difference.

It seems there are rules for some and not for others and one must be concerned to ask why. I would suggest the rules are steeped in political motivation.

In the case of legal aid it is the impression that the government must be paying lawyers too much and where lawyers argue that they ought to be so allowed the government can then counter this by justifying further reductions in their pay.

Take the case of personal injury law for another example:

Several years ago, referral fees were permitted and then all of sudden last year they were banned. The ban was justified by the alleged (albeit discredited) number of fraudulent claims; as if fraudsters will stop committing fraud because there is ban on referral fees anyway!

We were promised reduced insurance premiums and fat cat ambulance chasing lawyers would be no more!

But insurance premiums have not gone down, personal injury claim numbers have not reduced. The only benefit to have been realised is an increase in profits for the insurance industry.

The Government is not stupid, it knows all this but their decision to ban referral fees in personal injury cases was not to benefit any of us as they will assert, rather it was a “thank you” to the insurance industry for backing their election campaign both visually and financially.

Some argue that allowing referral fees will create a sub culture of claims farmers convincing clients to transfer solicitors notwithstanding it would not be in the clients’ interests to do so. Of course there are some who will try this but they will do so anyway regardless of any ban or permission. They are in the minority, a new permission will not create more of these people and let’s face it, the money is not there in legal aid to allow for very much by way of referral fee to be paid. I just do not accept this argument.

It will also be argued that it is unbecoming of lawyers to pay referral fees. I agree, oh no I don’t, for a moment there I thought we were in the 1940s.

My father, also a lawyer remembers a time when lawyers could not advertise at all and when barristers could not give out their business cards. Well I am afraid to tell you that we have moved on since then, we are no longer a profession, we are an industry and we have to make a profit. The SRA have seent o this since they agreed to allow non-lawyers to compete with us under different and more lenient regulation.

If we are to compete in a business world then we have to embrace that world, we cannot pick which bits we like and which we do not.

The SRA have asked if we think allowing referral fees will increase access to justice. Well simply put: No, it will not.

I have explained that there is no commercial reason for it and even if there was it would not matter because clients select their solicitor at the police station either because they know one or they get a duty solicitor. As far as I am aware the claims farmer will not be based in the station and then once signed up to a firm it is nigh on impossible to transfer thereafter.

There is of course the risk that referrers will refer to the firm which pays the most but is not necessarily the best. So what? The client can chose or rely on someone else to make a recommendation. I doubt any firm offering a poor service and likewise any referrer to such firm lasting very long in the market place. Such poor service is subject to ombudsman and SRA sanction in any event, they will soon be weeded out.

So I say allow them, it creates a level playing field but they will be irrelevant anyway.

Now on to the more difficult issue of solicitors receiving referrals or a fee shares from barristers and HCAs:

Essentially, people are concerned that the wrong barrister will be instructed simply because he pays the solicitor in return for the brief. I can understand this concern but I prefer to conclude that the ethical framework which binds most of us will act to sufficiently prevent this. Of course some will seek to refer work to the highest bidder regardless of quality but again, this will happen anyway. I do no believe that a ban on referral fees will stop those unscrupulous enough to act counter to the interests of their clients when there is a potential profit to be made.

I consider that it is a matter for every barrister or HCA to determine whether they wish to offer a financial or other type of incentive to appeal to those in the position to refer work.

I again stress that have never ever been offered a referral fee by a barrister, I suspect those who currently pay such fees know their perspective customers well. I did know of one barrister and solicitors firm who engaged in such practices. The issue arose by chance when I was chatting with the solicitor concerned. He made reference to their arrangement assuming I had a similar one since I used the said barrister regularly. The barrister in question was excellent, he did not need to offer anything, he was busy but he took the decision to do so, I do not know why. I have no doubt that had he been useless, he would have still got the work from said solicitor. Guess what that solicitor is no longer practicing and guess why?

So my point is that those who behave in an underhand manner, without regard for their clients, with financial interests alone in mind will rarely succeed, not for long anyhow. They will surely be found out, they will be complained about, reported, intervened or maybe just fail because eventually word gets around that the service they offer is below par.

In an ideal world, we would have rules in place that prevent anything from happening that we would prefer did not happen. However, this is unrealistic, rules do not top those with the requisite intent. We cannot and should not be advocating to legislate for the lowest common denominator.

That having been said, do I see any benefits in allowing barristers to offer such incentives? No I do not save for the fact that it allows them to operate on the very same commercial playing field as everyone else, assuming that is what we want them to do?

And finally, onto the issue of HCAs:

Where HCA’s operate independently as opposed to being employed within a law firm, it may be that they are seen as no different to the independent bar and whatever rules apply to a barrister in Chambers should apply equally to an HCA. But this is to distort the matter somewhat and is unfair. HCAs do not belong to chambers, they do not have clerks and admin assistants hence they often turn to a law firm to provide these services.

But this is where the issues become muddled. How much ought the HCA be paying to the law firm in return for these services? Should it be a percentage or a fixed fee? Is there a cap beyond which the payment to the law firm becomes more likely to be a bribe?

Because, of course, a law firm benefitting from a large share of the brief fee rather than a small nominal amount in return for a the provision of basic admin services may feel more inclined to instruct said HCA notwithstanding the HCA in question may not be suitably qualified for the case.

Again though, is this something we want to legislate for? Is it even something we could realistically enforce? I suspect not frankly, so instead why do we not just allow the market to weed out those who provide a sub-standard service as always seems to happen eventually. Let hose who feel aggrieved complain too s they already know they can.

I feel uncomfortable allowing a government department to set the rates of pay by an HCA to allow firm it may happen to be associated with, where will this stop? Will they use the ability to pay such a fee as an excuse to further cut fees?

Now a question for the CBA:

How does any of the above differ to the service numerous Chambers are offering to solicitors whereby if a solicitor has a case with several defendants, that solicitor can refer on one or more of the defendants to other firms via the use of the Chambers clerks room so as to ensure that the solicitor making the referral receives some other case back in return?

There is no consideration given by the solicitor as to whom the case will go so long as one is provided in return and Chambers are facilitating this. I do not think I need to list the potential regulatory breaches and other ethical issues for fear of repeating myself.

I will leave it with you to decide.

You can respond to the consultation yourself here: SRA Consultation

Howards Solicitors have offices in Manchester & Macclesfield and specialise in Criminal Defence, Road Traffic / Motoring Offenses & Personal Injury Law.

Details about the author:
Oliver Gardner is a criminal Solicitor and Director at Howards Solicitors with offices in Manchester and South Cheshire. Oliver is a committee member of the Criminal Law Solicitors Association and is trained in psychotherapy to level 3.

Contact details:
Manchester Office, Suite 2 East Wing Westpoint, 501 Chester Road, Manchester, M16 9HU
Tel: +44 161 872 9999
Email: oliver@howardssolicitors.co.uk
Website: www.howardssolicitors.co.uk