Solicitors 'breached code'

CLAIMS DIRECT: payments broke introduction and referral rule, says senior costs judge

Solicitors on the Claims Direct panel who paid a 464 fee in every case they received breached the introduction and referral code, the senior costs judge has ruled in a case that could have major implications for other claims management companies and the law firms on their panels.

Handing down judgment in the second tranche of the Claims Direct test cases, Chief Master Peter Hurst said the payment to subsidiary Medical Legal Support Services (MLSS) - said to be for the support services provided by the claims manager - was irrecoverable from the client and therefore irrecoverable from the paying party.

Master Hurst found: 'It is quite clear that the 395 plus VAT is the price which the panel solicitor must pay in order to obtain the work.

If the panel solicitor is not prepared to pay, the work goes elsewhere.

This is not a question of client choice but of MLSS effectively selling work to panel solicitors.'

He then found that the payment was a 'direct breach' of section 2(3) of the introduction and referral code.

'The solicitor cannot charge his client for it and the defendants do not have to pay it,' he said.

Master Hurst also decided that the administrative element in the fee charged by Mobile Doctors - which provided medical reports - should be irrecoverable.

He called for the parties to reach agreement on a figure so as to avoid an investigation being undertaken in every detailed assessment.

Claims Direct had already conceded that the 72.50 'vetting' fee paid to Poole & Co - the former law firm run by ex-chief executive Colin Poole - was not recoverable.

Andrew Parker, a partner at Beachcroft Wansbroughs who acted for one of the defendant insurers, said: 'We are pleased that Master Hurst has recognised the extra layers of costs that claims management companies have tried to build in.

'It is clear from this judgment that payments to introducers of work, however they are dressed up, will not be permitted in claims for costs.

If solicitors have made payments, insurers and clients will not be liable for them.'

Mr Parker predicted that the ruling could affect many claims management companies.

'This is going to give them a problem,' he said.

'They've got to get their money from somewhere.'

London firm Colman Coyle acted for the claimants in the test cases.

No one at Colmans was available to comment.

Despite efforts to abolish the introduction and referral code, the Law Society's ruling council twice voted against doing so last year.

Instead, it is to be enforced properly.

A Society spokesman said: 'The Law Society has already made it clear that the prohibition on referral fees will be rigorously enforced once the council has clarified the rule to resolve the current ambiguities.'

Last month, the Court of Appeal heard an appeal against Master Hurst's ruling in July in the first tranche of the litigation.

He held that only around half of Claims Direct's 1,250 premium was recoverable.

The appeal court's decision is expected shortly.

Neil Rose