Lisbon-bound for the NYSBA seasonal meeting

Today, I’m Lisbon-bound for a conference hosted by the New York State Bar Association at the Pestana Palace hotel. By all accounts this is a fine, city centre hotel, though I’ve opted to stay away from the hustle and bustle at The Oitavos Hotel, some 40 minutes drive from Lisbon.

This is my first trip to Lisbon, and next week I’ll post a snapshot of my impressions of this venerable and historic city. As I write, however, the task in hand is preparing a short speech I’ll give on Saturday morning, as well as a panel discussion. Between 9.00 and 11.00am, debate will centre on Alternative Law Firm Structures around the world, in a plenary session chaired by Kenneth G. Standard of New York firm Epstein Becker & Green. Other panellists include Vasco Marques Correia, the president of the Lisbon District Council of the Portuguese Bar Association; Junlu Jiang, of King & Wood Mallesons, Beijing; and Steven Younger, from Patterson Belknap Webb & Tyler LLP, New York.

I will be talking about Alternative Business Structures (ABSs), first proposed in Britain six years ago by Sir David Clementi, then given statutory footing in 2007 by the Legal Services Act and finally ushered in by the Solicitors Regulation Authority earlier this year. ABSs were much touted prior to their arrival as heralding a brave new world that would be of great benefit to consumers. They would allow non-lawyers to own and invest in law firms, thus revolutionising the legal profession because clients would have a cheaper, one-stop option for their legal needs.

Among those who sounded cautionary notes about ABSs were sole practitioners and small firms, who were wary of the notion of ‘Tesco law’ and ‘one size fits all’ for legal problems. I was also dubious about ABSs given the way in which they could be deployed to circumvent the Ministry of Justice’s  ban on referral fees in personal injury cases to be implemented in April 2013.  Because ABSs enable insurers and claims management companies to own and invest in law firms they can sidestep the MoJ’s efforts. It cannot be good for the consumer for a culture to arise which sees insurers start handling PI claims from start to finish.

In Britain, the take-up for ABS licences has been relatively slow, but the bandwagon is moving. More and more law firms are set to form alliances with other businesses, creating more ABSs. I do not object per se to the idea of ABSs, provided not only that a watchful eye is maintained on their ability to sidestep the ban on referral fees but also that the profession as a whole abides by its age-old principles. By this I mean that professionalism and ethical conduct must not be allowed to play second fiddle to the commercial dictates of outside ownership or too obsessive a focus on shareholder value.

The danger, with ABSs, is that he who pays the piper calls the tune. As lawyers, our tune must sing to the client’s good, first and foremost. ABSs are acceptable, so long as this is not forgotten. This is the most serious issue for debate.

Principles lost? The loss of professionalism in the personal injury system

In 1992 Lord Benson stated there were nine key principles of professionalism to which lawyers should adhere. Two, in particular, should be second nature to lawyers: the principle that ‘ethical rules and professional standards ... should be higher than those established by the general law’ and the principle that legal practitioners ‘must not allow themselves to be put under the control or dominance of any persons or organisation that could impair that independence’.

Regrettably, adherence to these principles is not always second nature, especially if we take a bird’s eye view of the personal injury sector. Here, as well as potentially referral fees – which the government intends to ban – there are a myriad of other practices which conflict with Lord Benson’s principles. Alternative Business Structures (ABSs) have been heralded as signalling a brave new world but they create a route to absolute ownership by insurers, who then effectively bypass the referral fee issue and achieve wholesale ownership of the entire process, from providing insurance as an indemnity insurer to solicitors making the claim against the third party. The government’s failure to any action given that ABSs will have this effect is symptomatic of a worryingly piecemeal and uncoordinated approach to the referral fee problem.

Some might say that the Legal Aid, Sentencing and Punishment of Offenders Bill (LASPO) will reform the personal injury sector. It professes to ban referral fees but, given the loopholes carved out in various places, is likely to be a paper tiger. Moreover, simply banning referral fees will not show insurers, CMCs and indeed some solicitors the error of their ways; in all likelihood, it is likely to push the practice further into the shadows. New practices will inevitably be devised which will share the detrimental and profit-driven features of referral fees. Some in the PI industry have already described to me the receipt of calls from CMCs offering to sell information with regard to prospective clients under the guise of ‘marketing information’ – a euphemism for ‘referral fee’. 

It was the proliferation of referral fees – and their associated, seemingly endless ancillary services such as car hire and medico-legal services – which have done so much damage to the PI system. Wedded to these are the advertising campaigns which CMCs and some solicitors have embarked upon. Not only do they sail dangerously close to inciting litigation, they cheapen the legal profession to such a degree that the title ‘ambulance chaser’ is not an entirely inappropriate label. Add the sale of personal data and underhand marketing tactics such as spam text messages, and we are faced wholesale systemic failure in this vital branch of the law.

If we want to grapple seriously with all the issues, we need wholesale cultural change. The government’s piecemeal, reactive approach is flawed. The interests of the public and victims of accidents must be the priority in the minds of all professionals, with profiteering stamped out.

Cynics might say such a utopian ideal for the PI system is unattainable. However, I would counter that it can exist if we rediscover and implement Lord Benson’s wisely drafted principles.

What underpinned Lord Benson’s approach is the notion that to be professional is to act in the public interest. The barometer by which he proposed to measure the standard of the profession is the degree to which individuals and their governing body act ethically. These principles should be the foundation of reform, and, even more important, practice. If the mindset of all the participants within the personal injury system is focused on acting ethically in the public interest, there will be no need for ‘catch-all’ regulation. Although a minority may still exploit loopholes in the system and evade regulatory oversight, they will eventually be stamped out by market forces. In fact if you speak to potential private equity investors in the profession, they see the value of retaining and emphasising professional standards.

Such a picture may seem uncharacteristically optimistic from someone who has written of his dismay about our industry and current efforts to reform. However, for every organisation or individual I have encountered who has displayed contempt for the public good, I have met dozens more who wish to do the best for their clients. It is because of this that I am certain that our profession and the industry can save itself from ruin and regain the principles which have been lost.

For any readers who are APIL members it is intended to publish a fuller article on this subject in the May edition of Focus, or if you are not and prefer please let me know and I will provide a full copy of the article.

Client data is sacrosanct. It shouldn’t be for sale

Like any busy solicitor, I receive a number of emails from all manner of people on a daily basis. Some of them are from clients who need help, while others are from the other side’s lawyers in a claim we’re handling. Still others fall in the networking category; some are even from old friends.

Fortunately, very few emails invite my firm to break the law. That, though, seems to be the effect of one particular email which a colleague received. I do not propose to identify the sender, and so I won’t even give an extract, but let’s just focus on one thing, for starters: the spelling! I am more forgiving than most of poor spelling. I have mild dyslexia, but in this instance it is indicative of a much deeper problem..

In fact this particular email – a round robin that many other law firms in the personal injury sector will have received – has more spelling mistakes than Fernando Torres has goals for Chelsea. In truth, the latter upsets me more. Torres is a great player but his inability to find the back of the net is a growing problem for my beloved Chelsea (although the less said about how the team threw away a 3-0 lead over Manchester United last weekend, the better).

Moving swiftly on... Perhaps its errant spelling is symbolic of how not all is right with this particular email. Certainly, if it were to be assessed for its linguistic elegance alone, it would come up wanting. But such things are small beer compared to what is really wrong with this email, which was sent by a large claims management company (CMC).

The email seeks to acquire personal injury claims which have stalled, for whatever reason, so that they can be placed with one of the CMC’s panel of solicitors. The incentive is a referral fee which, on the face of it, is far from insubstantial. In fact, it’s some £400 to £500 per case referred.

The problem with this is simple, and it’s to be found in the Data Protection Act 1998 (the DPA). The DPA contains eight data protection principles, which apply to anyone who processes personal data. Law firms and CMCs are governed by the Act, which, among other things, stipulates that data must be processed fairly and lawfully, in accordance with the data subject’s rights and for limited purposes. ‘Data controllers’ – again, for present purposes, law firms and CMCs – must be open and honest about how data is used, ensure that nothing unlawful happens with it, and handle it only in ways that are reasonably expected.

My question is this. Is it reasonable for a client of any law firm to expect that his or her data will be passed on to a CMC, in return for a referral fee? Bear in mind that ‘sensitive personal data’ has an additional level of protection under the Act; it would include matters of health, which, by definition, is what is in issue in a personal injury claim.

It seems to me that what this particular CMC is doing is soliciting a breach of the DPA. Of course, properly conducted law firms will baulk at the suggestion and refuse to play ball, but there are bad apples in every walk of life and some may be tempted. As such, this initiative goes to the heart of the malaise presently afflicting the personal injury sector.

Interestingly, however, harsher penalties are expected for data protection breaches following a review and new proposals by the European Commission. It is proposed that fines are to be linked to annual worldwide turnover of up to 2% (this could be a huge sum, depending on the size of the organisation), or may be as high as one million Euros for serious breaches. It is also proposed that the new law will apply to non-EU companies who market to or collect data about individual citizens based in the EU. Moreover, compulsory notification of data breaches is to be required: the Information Commissioner’s Office must be told of data breaches within 24 hours and the individuals affected without undue delay.

These and other proposed changes mean that data protection law may yet bite those who refuse to take it seriously.