Ministry of Justice Propose Ban on Referral Fees

The Government announced last week it’s intention to ban referral fees in personal injury matters.

This is seen as part of the Government’s tough stance on tackling what it describes as “compensation culture”.

Fees are often paid by solicitors to claims management companies or insurers, in turn for a referred personal injury case. These fees are often in excess of £600 per case and are currently legal, although referrers are regulated and monitored by the Ministry of Justice.

Speaking at the announcement of the proposal on 9th September, Justice Minister Jonathan Djanogly said;

‘The ‘no-win, no-fee’ system is pushing us into a compensation culture in which middle men make a tidy profit which the rest of us end up paying for through higher insurance premiums and higher prices. Honest motorists are seeing their premiums hiked up as insurance companies cover the increasing costs of more and more compensation claims. Many of the claims are spurious and only happen because the current system allows too many people to profit from minor accidents and incidents.

‘Referral fees are one symptom of the compensation culture problem and too much money sloshing through the system. People are being encouraged to sue, at no risk to themselves, leaving schools, business and individuals living in fear of being dragged to the courts for simply going about daily life.

‘We will ban referral fees and we will go further. We have proposals before Parliament to end the bizarre situation in which people have no stake in the legal costs their cases bring. This will make claimants think harder about whether to sue and give insurance companies and business generally an incentive to pass the savings onto customers through lower prices.’

In other quarters the proposed ban is seen as an attempt to deflect attention from the reforms proposed by Lord Jackson and contained in the upcoming Legal Aid, Sentencing, and Punishment of Offenders Bill which is about to be discussed in the committee stage.

 

Speaking to her members, Deborah Evans, Chief Executive of the Association of Personal Injury Lawyers, said;

“I suspect referral fees are being used as a Trojan horse to detract attention from the Legal Aid, Sentencing, and Punishment of Offenders Bill. The initial debate on referral fees broke to coincide with the launch of the Bill, and certainly drew media attention away from it.

Indeed, the Bill was then touted as the solution to these evils, even though it addressed none of them. Is it coincidence that as the Bill comes under the spotlight, and the Jackson reforms are about to be discussed in the committee stage, the issue of referral fees rears its head once more?”

She goes on to cast doubts on the enforceability of any ban, saying;

“In Northern Ireland, the ban has been toothless. It is not enforced, and anecdotal evidence is that the referral market remains in all but name – payments often being called ‘administration expenses’ for example. In effect, the practices have been driven underground.”

It remains to be seen whether a ban on referral fees will be effective in reducing the overall amount of fees paid in personal injury matters. However, if it is to have any impact in reducing unsolicited approaches to members of the public by claims management companies, it will no doubt be welcomed by most.

Gregory Abrams Davidson LLP specialise in Personal Injury Law. If you have been injured, cut out the middle man and approach us directly on 0151 236 5000.