National law firm Shoosmiths has agreed to pay what is believed to be a substantial referral fee to the Automobile Association (AA) as part of its deal to act as exclusive provider of legal services to the association's customers, the Gazette learned this week.

The AA will refer around 9,000 cases a year for the next three years to the law firm, in a deal that Shoosmiths estimates will generate some £33 million in fee income over the three years.


The Gazette has been told the law firm could hand over as much as £600 per claim to the AA in appropriate cases, netting the motoring organisation several million pounds. Both the AA and Shoosmiths confirmed that a referral fee has been agreed, although they declined to comment on the amount.


Shoosmiths partner John Spencer said the firm would be looking to recruit around 30 staff to its Basingstoke operation in the first six to nine months of the new contract, around half of whom will be qualified staff.


He said the majority of the work would be personal injury claims, but there would also be some employment, contract and property disputes work.


At the instigation of the Master of the Rolls, Lord Phillips, the Law Society is currently conducting a review into the impact of the decision to allow solicitors to pay referral fees, which came into effect in March last year.


One industry source said: 'Referral fees are a big issue for personal injury firms. Things are travelling in the direction where any contract of that [bulk] nature will involve finding the money to buy the work. Margins are being squeezed.'


Commenting on the referral arrangement, Alan Harrison, partner at Shoosmiths, said: 'We are a firm that complies with all regulations and therefore we would expect to work within the code, which is quite strict regarding referral arrangements.'