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 1^st 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 1^st 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 25^th 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 1^st 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.

The Musings of a Grumpy Old Git

I'm feeling grumpy today. I have been in a good mood all day so not quite sure what has turned me sour. Ok well actually I do. Having been  beavering away all day, I decided to have a break late afternoon and turned to the excellent Legal Futures website. Apparently there has been some report or other carried out by the delightfully named 'Espirito Santo Investment Bank' which says (I haven't read the report - I can rely on Neil Rose and his team to tell me all I need to know);

• Numerous 'external investors' will appear on the scene once the 'floodgates of change' hit the PI market next year
• There will be just five or six claimant firms likely to dominate
• Lots of insurers fancy becoming ABS's (I'll bet they do!)
• Apparently PI Legal services will become - wait for this - you'll enjoy this piece of plain English - 'part of a more integrated supply chain..Service providers will increasingly include multi disciplinary tie-ups which offer bundled services. Size will be critical'. Really - bigger is better and all that?
• Most CMC's will disappear - if they are merely ticket touts ie selling on PI claims for more than they paid for them,then good. 
• Their (the CMC's) cases will be picked up by solicitors who have the funds (because they aren't paying referral fees anymore) and the time (because they've no work to do) and they will have suddenly picked up the skills (that they haven't had for all those years they were paying referral fees) and the inclination to go out and market for themselves and pick up lots of new PI cases. That'll be alright then - except wait - I thought the 'five or six' 'size is critical' outfits were going to hoover up all the new claims - so there aren't actually going to be any for the small to medium sized firms after all? Ah, here we go...
• As a result of the referral fee ban, claimant firms will either look to expand...or ...erm... they won't - in which latter case they will exit the market..

I started to get bored after that. Apparently there are going to be a lot more mergers and basically if you don't merge or form an ABS or get loads of funds invested in your firm to expand then you might as well go and do some conveyancing or become a shipping lawyer or something of that nature. Oh and if you do form an ABS, merge or take on 100 new staff and act the big law firm...don't forget that the only thing that has been decided is that referral fees for PI work are banned (but not yet properly defined blah blah). So you might in fact be spending a lot of money on ABS, merger, expansion and come April you may well find that you can't make RTA/PI pay!

View From The Claimant Camp - Is There Anyone At Home?

                                                                            

I have to confess that I have developed the habit in recent times, upon waking and after making the life-saving cup of tea, of switching the laptop on and diving straight into Social Media. The other day I went straight to one of my favourite sites, the excellent ‘Legal Futures’ and there it was – an article with the headline ‘Government confirms U-turn on raising small claims limit for PI claims.’ My immediate thought was, ‘where is Maggie when U-turns are being talked about by a Tory government?’

My disposition quickly turned to anger. Just a few months ago the government said that the personal injury small-claims limit would remain at £1000. That was following the ‘Solving dispute in county courts’ consultation – consultation, that’s right. So what has changed in a few short months for the government to perform a U-turn?

Furthermore the article went on to state, that in the summer, the government ’will consult on this (increasing the limit) and on the feasibility of introducing independent medical panels to replace the current assessment of whiplash injuries either by GP’s or by doctors employed by medical reporting organisations’. The Moj’s  statement justifying  this, included the now well worn chestnut of ‘transparent and consistent approach to assessment and easier identification of exaggerated or fraudulent injuries.” Ah yes, “fraudulent claims/injuries”, “exaggerated” – add to that your own list - here are a few more to help you : “compensation culture”, “blame culture” “whiplash claims” (meaning any injury that has a compensatory value of less than £5000), “genuine victims”, “No Win – No Fee” (this has to be said in a certain manner to get the full effect ie the words have to be spat out). You get my drift – sound bites.

The government spokesman went on to provide further justification for these proposed measures;

“This is part of a package of reforms, including reforms ‘no win, no fee (spit)’ and referral fees. This will reduce costs for insurers (ah, right) – savings which we strongly encourage (note the use of very gentle word – ‘encourage’) them to pass onto consumers through cheaper premiums (breath not being held.)’

To his credit Law Society President Wotton did weigh in with the following;

“Fraud is entirely indefensible and the Law Society has made it clear time and again that it is happy to work with ministers and the insurance industry on tackling fraud head on – but we must ensure that proper recourse to justice remains available for those who have been injured by the negligence of  others. We doubt that simply giving insurers what they are asking for will reduce premiums.”

So there we have it. Referral fees and ATE are to go. The reducing of the fixed fee that solicitors can claim when they deal with claims under the portal is already underway and leaked emails tell us that the insurers likely starting point will be £150.00 – consultation with the claimant lobby will take place. So £150.00 is what it will be then gov?

Look, I have been involved in this “industry “(hate the term) since the early 1980’s. I worked for and then with, the pioneering Manchester solicitor, the sadly now deceased Keith Beardsell. I worked in his small office when regular visitors would be Chris Norman and David Garner, at that time computer  salesman (of ‘tardis’ sized computers)   and Accountant respectively. The former founded what became 3 Arrows Car Hire, the latter Forward Hire, MSL and now Financial & Legal. I saw the birth of credit hire and RTA claims, as entities in their own right. No the insurers didn’t like them. To claimants’, credit hire, credit repair and efficient solicitors were great services – to the insurers an unwelcome expense. 

                              

                                                                             

In the early to mid 1990’s I was involved at the “coal face” when the insurers and their advisers turned to the medieval concept of ‘Champerty & Maintenance’ to try and persuade the judiciary that credit hire agreements were invalid in law. I was at the House of Lords, when it ruled in the test cases before them, that such agreements were valid. Bloody nose for the insurers no 1.

I had my own practice by the time that the next real test went to the higher courts and the Consumer Credit Act cases of Dimond v Lovell et al were heard. Bloody nose for the insurers no. 2.

Throughout this period and indeed up until the present day, there have been steady streams of precedent cases on “rate of hire” and “length of hire.” That is entirely healthy – some have gone for claimants, some for the insurers.

However, overall throughout the last 25 plus years the claimant “industry” has survived the legal challenges to it. Perhaps that is because it has by and large been conducted along decent, legal lines and also because it provides a very good service to genuine claimants.

To my mind, this is the crux of where we are today. The insurers have failed to defeat what they see as an insidious “industry” per se, by using the courts of the land. So their tack now?  – political lobbying. Hit the governments of the day – of whatever political persuasion – right in the solar plexus – mention ‘vote winning’.

First of all though there had to be a period of building up the right atmosphere. So there was much talk using the sound bites mentioned before “compensation culture” “fraudulent claims” “whiplash injuries”, “NoWin, No Fee (I will have to clean the study floor of all this spittle) and of course “reducing insurance premiums”. We all want lower insurance premiums, particularly those of us with children of a certain age who are desperate to get their independence from “Mum and Dad’s taxi” (I wouldn’t mind some independence for Dad either) .

Then attack – and boy haven’t they done well these insurance boys (and girls). So, it seems we are now at the stage where it’s almost mission complete and the insurers have got their way. I’m not suggesting that they have done anything wrong either morally or legally and of course the claimant camp has a voice but either it has been ignored, or as I suspect, it has not made itself heard loudly or effectively enough. I wonder where all those fighters from the 90’s have disappeared to? Probably grown into middle age and beyond as I have (I will own up to the former, not yet the latter). Possibly in their place have come those who have become complacent and if they have woken up to what is happening, they have done so too late. So like the Wolverhampton Wanderers defence have done this season, they have stood dozing on the half way line whilst the opposition has scored goals at will.

Nor am I saying that there is no need for reform. I have never liked referral fees. As a solicitor with my own practice, starting up in 1994, I built my business up  by marketing very actively – getting my hands dirty by going out to see insurance, brokers, garages, legal expense insurers and gradually growing by providing a good, honest and efficient service and gaining a decent reputation. I resisted referral fees for as long as I possibly could, but when they became permitted in the late 90’s I had to give in eventually. I recall spending what for a small practice was a not inconsiderable sum on doing some cable TV advertising (hands up who remembers cable TV?). Our advert used to go out between the topless darts and the weather girl – or was it the topless weather girl and the darts? No wonder we got some strange enquiries! I recall at the time speaking to a good friend who acted as a mentor to me , and who was the Senior Partner of a large, successful RTA practice in the north. He asked me how much I had paid for the advertising and when I told him, he said to me that for that amount, he could buy around three hundred guaranteed fee bearing case leads. I had to take that on board and accept defeat. Ultimately the bulk of referral fees end up in the pockets of the insurance brokers, garages and recovery agents (not to mention LEI’s). They do not, in my experience though, add any cost whatsoever to the claim in so far as the paying insurer is concerned. They are swallowed up as a necessary evil by the claimants solicitor.

Like everyone else, I abhor fraudulent claims. I am aware that unfortunately the practice of sham accidents and false claimants has risen over the past 10 years. I had a few scenarios when in practice where I or my fee earners suspected dodgy dealings were afoot and we got shot of them and reported them very quickly. Even as recently as the past couple of months ago,  I came across an outfit advertising for PI’s to be referred to them for a payment of many hundreds of pounds on a social media site. I played along by making some enquiries of them, but when I broached the question of seeing their MoJ authorised business number, they quickly went silent on me. I reported them via the Claims Regulation website and asked to be kept informed – however that was about 4 weeks ago, and I have not heard a word from the authority. I’m not aware if the outfit in question were involved in fraudulent claims, but as far as I could see they were not authorised to carry out claims management services as they ought to be. I simply did what the vast majority of those in the claimant camp would do, and reported them.

It just frustrates and indeed angers me that by using soundbites, vote winning words and slogans, as the government and insurers do, all claimant solicitors, all claimants, all of the smaller injuries suffered by those claimants, all AMC’s, all credit hire companies and so on, are tarred with the same very unfair brush.

Neither do we hear a great deal about the inefficiencies and at times ( I am being kind using the words ‘at times’) incompetence of insurers, in the way they approach the handling of claims. A whole book could be written on my experiences of dealing with insurers, and the quality of staff that they have historically employed, but suffice it to say that were as much attention and time poured into them sharpening up their own act, as has been put into their cosying up to the governments of recent times, considerable savings could already have been made on insurance premiums.

Anyway, in 18 months time, please folks tell the world how much your insurance premiums have come down, once those nasty claimants and their even nastier advisors have been trampled underfoot. Or will it be the case that the insurers will have to find new scapegoats as to the reasons why surprise, surprise, they haven’t really come down at all?