Wednesday, 28 September 2011

Reform in haste, repent at leisure

The old saying is that the wheels of the law grind slowly. This is true. However, if it means that we get things right, it strikes me that patience is no bad thing.

When it comes to referral fees, I find myself champing at the bit for a quickening in the pace of reform, and yet, having reflected further on the Ministry of Justice’s recent announcement that referral fees in PI claims are, at last, to be banned, mindful of the need to cover all bases. Moreover, consideration of some of the finer points arising from referral fees reveals that while a ban is welcome, there is still a way to go.

Take, for example, the definition of a referral fee. At present this is conspicuously absent from the Solicitor’s Conduct Rules. Lord Justice Jackson, in his Review of Civil Litigation Costs, proposed that a referral fee is "any form of payment or other consideration to a party for introducing clients to a solicitor". His Lordship expressly suggested that this should be subject to input from the Solicitors Regulatory Authority (SRA) and the Legal Services Board (LSB).

It seems to me that Jackson LJ’s definition is a good  starting point. We need it because, if we are to stamp out what his Lordship described as an “abhorrent” practice (ie, the endemic paying of referral fees), we need to be clear about what is, and what isn’t, a referral fee. It is to be hoped that the two professional bodies to which Jackson LJ referred revert to him speedily, and certainly rather quicker than has been possible with the SRA and the licensing of Alternative Business Structures (ABSs).

ABSs were much trumpeted following the passing of the Legal Services Act 2007, given that they will revolutionise the way in which solicitors run their businesses. The Legal Services Act allowed non-lawyers to own and invest in law firms, and the ABS regime was due to come into play on October 6th. Many have lamented delays in its implementation, the latest of which the SRA  currently attributes to  the ‘parliamentary timetable’. Now, it seems, the SRA has been given the green light to be the licensing authority for ABSs, but as Professor Stephen Mayson notes on his blog: “We have had more than six years since Sir David Clementi first proposed [ABSs]. They are not a new idea; and it’s not as if no-one has spent any time thinking about both the principles and the detail since then... Where have these members [of the legal profession] been for the past six years?”

That aside, there is another significant issue with regard to ABSs – one which means that the delay understandably criticised by Professor Mayson might be a blessing in disguise. The fact is that ABSs are Trojan horses in the battle against referral fees. They enable insurers and claims management companies to own and invest in law firms, thereby circumventing efforts by the Ministry of Justice to rid us of referral fees and what the government condemns as ‘compensation culture’ – because insurers and claims management companies could be handling PI claims from start to finish.

There’s more, too. What of the raft of ancillary payments made by those outside the legal profession, even once the ABS regime is in place - the likes of garages, reporting engineers and towing companies? These bodies all habitually pay referral fees, thereby fuelling a vicious circle which ultimately means that accident victims’ claims may be handled by inexperienced, non-expert lawyers – and meaning that drivers’ insurance policy premiums endlessly increase.

It all adds up to a situation calling for reform, but reform done well. A little delay, so that we can think through all the issues properly, may be no bad thing. Or, as is said of another sphere of life to which most of us can relate: ‘marry in haste, repent at leisure’.

Wednesday, 21 September 2011

Fixing a broken system

What’s not to like about last week’s announcement by the Ministry of Justice (MoJ) that referral fees for personal injury claims are to be banned? After all, for far too long we’ve been held hostage by a dysfunctional system, one which privileges money over merit so that the law firm that pays the most, rather than that which is best equipped to deal with an accident victim’s claim, is rewarded. Surely, then, the MoJ’s declaration is good news?

Well, yes, but in truth the MoJ’s announcement is more of a step forward on the long road to recovery than news of complete rehabilitation. That there is a long way to go is best illustrated by a look at the nitty-gritty of the current system. Today, as you read this, a personal injury lawyer somewhere in the country will be signing off a payment which secures drivers’ details from an insurer, a garage or, most probably, a claims management company. En route, data protection laws will almost certainly have been breached – did you really consent, when you renewed your insurance policy a decade ago, for your mobile phone number to end up on an accident claim marketer’s database? But no matter: the show must go on. And so claim after claim is made, creating a vicious cycle which sees the insurance companies pass on their increased costs by setting higher premiums for all drivers, irrespective of whether they have made a claim.

Sound familiar? Does it also sound like a racket? The Chairman of the Bar, Peter Lodder QC, thinks so. For him, referral fees are “bribes and add an unnecessary cost to litigation ... [they have] no place in a fair and open justice system.”

Most agree that they wish referral fees were not in the system and so although it is impossible not to welcome the MoJ’s announcement, a huge cautionary note needs to be sounded. What is required is a holistic approach to curing the ill of referral fees. The current system is complex, with any number of strands going off in any number of directions, and we must beware of piecemeal solutions. What, for example, is the government’s definition of a referral fee? How will the advent of Alternative Business Structures (ABSs) influence the personal injury and insurance markets? Could it be, thanks to the ABS regime, that a claims management company or insurer takes over a law firm? Market rumour is indicating that a vast majority of CMCs have expressed interest in doing just that when the time comes. Also, what of data protection, SMS spam and the RTA Portal?

Ultimately, reform of this sector comes down to one thing. How far are we from acknowledging, as Lord Jackson’s Report urged in January last year, that accident victims are not a commodity?