Lord Justice Jackson has been urged to recommend a ban or cap on referral fees as part of his review of civil justice costs.

In its response to Jackson’s consultation, the Bar Council said referral fees ‘led to bad service and should be abolished’, noting that they were not permitted under the Bar code of conduct.

The Association of Personal Injury Lawyers (APIL) said the removal of the ban on referral payments in 2003 had brought about ‘increased fee levels, a lack of transparency and conflicts which must be addressed’, and called on Jackson to explore the possibility of a cap on fees.

It claimed that insurers often made law firms engage in ‘secret bidding’ in order to join their panels, with firms willing to bid the highest figure in referral payments to the insurer being awarded a place on the panel.

APIL president John McQuater said a cap would ensure the level of referral fee would ‘more accurately reflect’ what the marketing cost would otherwise have been to obtain the work.

A spokesman for the Association of British Insurers said he was not aware of the ‘bidding war’ described but acknowledged that the issue of referral fees needed to be addressed, given that they could be ‘counterproductive’ in pushing up the cost of the claims process.

In its response to Jackson’s consultation, the Law Society said that it backed the payment of referral fees while other, non-solicitor providers were permitted to do so. However, it would support ‘a review to see whether it would be practical to prohibit payment of such fees altogether’.

The Society urged that no action be taken against referral fees until there has been ‘proper research as to their effect on costs, access to justice and the behaviour of solicitors’.

Jackson is conducting a ­wide-ranging review of civil litigation costs. His preliminary report in May asked for views on the greater use of fixed costs, changes to the ‘loser pays’ principle and a possible crackdown on referral fees. A three-month consultation ended last month and Jackson is due to publish his final report in December. Lord Chancellor Jack Straw has pledged to give the recommendations ‘a fair wind’.