I attended the SRA's seminar on referral fees on 19 November. It was part of its consultation exercise on implementing the poisoned chalice of the ban on referral fees for personal injury cases. It was well attended and the SRA ought to take credit for listening to the worried and angry concerns of the 100 or so solicitors who attended.
I'm not going to go into the arguments for and against referral fees. For the record, the Law Society opposes them but thinks that the way in which the ban is set out in the Legal Aid, Punishment and Sentencing of Offenders Act 2012 (LASPO) is likely to lead to major unintended consequences and problems for smaller firms. Given that the ban is due to take effect from April next year, it must be better to focus on what it means for practitioners.
From the discussion, there were three clear concerns:
- what does the ban actually cover and what can I still do get PI work through third parties (which I'm sure is what people really meant when they talked about getting round the ban)?
- what will happen to me if I get it wrong?
- how can we adjust in time for 1 April 2013?
The debate on the first exposed the potential for a car crash when outcomes-focused regulation (OFR) meets the substantive law. LASPO makes it clear that giving or receiving a payment (which may involve something other than money) to receive information that may assist in bringing a PI claim will be illegal. However, essentially, it makes it a regulatory offence and it is for the regulators – SRA, the claims management regulator and Financial Services Authority – to make the appropriate rules and enforce them.
Now OFR is all about having flexibility, looking at risks and taking adult decisions within the context of the principles. That doesn't sit well with the legislative approach that a payment either falls foul of the act or it doesn't. Add to this the scope for confusion if, say, a solicitor enters into an arrangement which the claims management regulator thinks is fine but the SRA doesn’t. The regulators talked bravely about working together closely, but the possibility of conflict must be there. And the courts might also throw everything into confusion.
Patrick Allen made the point that for many firms, paying for referral fees was a cost-effective way of obtaining work. So what are the alternatives for them? They can do the advertising themselves, or buy a claims management firm and use its expertise (probably as an alternative business structure). There might be other arrangements involving joint ventures with CMCs and insurers whereby fees are shared, rather than any payment for cases and a myriad of others. However, it became pretty clear that there are not many obvious easy answers. And it looked as though it would all depend on the small print of an arrangement.
But firms will be making significant and costly changes to their business models to comply with the ban and this uncertainty isn't good for them.
Until now the SRA has had a phobia about giving before-the-event clearance or safe-harbour advice to firms. I've some sympathy: no regulator or law maker can provide absolute certainty and, until the ban was lifted, this was a notorious area for people finding creative ways of paying for work. Even at this meeting, Andrew Darke from Irwin Mitchell proposed two quite convincing ways of getting round the ban… sorry, of legitimately paying for work from third parties, that I hadn't thought of. There will be many more. But what people wanted was some certainty, some safe-harbour advice.
The SRA made it clear that this was not on offer, but it does seem to have tackled some of its phobia. The consultation paper actually sets out examples of things that it thought were within the law and which were not. This is good news, but can't they go further? What is wrong with saying ‘we've looked at scheme X and it's fine in its present form’. This would surely save firms a lot of worry and avoid the rumour mill that will inevitably otherwise occur. I'd urge them to think about this.
As to what happens if you get it wrong, people from the supervision and enforcement team spoke about their approach. This, I thought, might give some reassurance to firms. The approach appears to be that they will look at a firm, at the risk it poses, at the extent to which it had considered whether a referral fee arrangement was lawful and the steps that it would take to meet any concerns from the SRA. The implication was that a firm that had taken a decision on the arrangement in good faith, after full consideration and was able to take steps to change it without going out of business, would not be subject of significant regulatory action. That’s all well and good, but most firms just want to get it right.
Their approach was echoed by Kevin Roussel from the claims management regulator who felt that the regulator would, in effect, be turning a blind eye to illegal arrangements for some months in order to give businesses time to comply. He indicated that the ABI would understand this approach. (It wasn’t clear to me why the ABI were so important here that they were mentioned instead of, say, ministers – this must have added grist to the mill of those who think that government is simply the ABI’s puppet here.) However, it seemed odd to me that both regulators seemed willing to countenance illegality for a period. Pragmatic, but odd.
Finally there was the question of the timescale. The SRA consultation will close on 18 December and the rules will be made by March for implementation by April. This means that all of those firms currently paying referral fees will need to move very quickly to comply.
If they want to convert to an ABS, involving either insurers or claims managers, they are probably already too late. Mind you, the presentation by the members of the team responsible for authorising ABS firms was so fearsome that I wondered why anyone would want to spend the time leaping through what looked like ever-narrower hoops to persuade them that the darkest and least likely disaster scenarios would not occur. No wonder it takes so long to get a licence…
Now you can’t accuse the SRA of moving slowly following the ban, but to give people only about a month between the final rules being published and implementation day is surely too short and must explain the understanding, "blind eye" approach that appears to be being adopted. Even assuming that the rules are very similar to those in the consultation paper, less than six months to change a business model is a ridiculously short time. We’ll be pressing government to delay implementation.
Then, right in the middle of the seminar came the government’s consultation on fixed fees for the Road Traffic Accident Portal. Having seen those rates, lots of people were feeling that the referral fee ban was irrelevant – nobody could afford to do work on those fees, let alone pay for it. If, as most of us suspect, the real agenda is to reduce the number of claims, irrespective of merit, government is certainly doing a thorough job of it.
However, if you will still be in the market for this work, do look at the SRA consultation paper and slides and let us know your views. The consultation closes on 18 December and we need to have your views.
Mark Stobbs is the Law Society's director of legal policy