A consultation took place in November 1996 because there were conflicting views about the current code.

Some solicitors thought the code was too restrictive whereas others thought it needed to be tightened.

More importantly, many solicitors did not understand it at all.

The Law Society's standards and guidance committee also believed that the code might be one piece of regulation which could be removed.Although the consultation covered all aspects of the code, the key issue was whether the current prohibition on paying for referrals was sustainable in the context of modern business practice.

If not, could the public interest, which the prohibition was intended to protect, be protected in some other way?Results of the previous consultationThe results of the consultation were surprising.

Some 73% of respondents were opposed to solicitors paying for referrals and 64% called for the code to be strengthened to prevent any sort of payment or other inducement being given to introducers directly or indirectly.

However, neither the Consumers Association nor the National Consumer Council thought the code should be relaxed as to do so would not be in the public interest.These results meant that the standards and guidance committee had to reconsider how any reform to the code should be tackled.

Contrary to the committee's initial stance the profession appeared to be in favour of regulation in this area.

Therefore, the committee thought the starting point for any new code must be to establish the real mischief the current code was designed to prevent and it has tried to draft a new code on this basis.Why do we need another consultation?The draft code is intended to contain a more 'watertight' prohibition.

It may prohibit a number of arrangements firms currently have with introducers, set up in the belief either that the arrangement is not prohibited by the current code, or in the belief that the current code is unenforceable.

The draft code may come as a surprise to many solicitors who may not have responded to the earlier consultation on the basis that deregulatory options were being considered.In addition, the main complaint about the existing code is that it is difficult to interpret, and therefore is difficult to enforce.

The Council wants solicitors' views on whether, in the light of the draft now proposed, increased regulation is the way forward and if so, how workable the proposed draft is.The aim of the current draft:-- to create a clearer, shorter code and to lay down general principles;-- to ensure that solicitors obtain work by virtue of their reputation rather than their ability or willingness to pay for referrals;-- to minimise the risk that referrals are made because of the improper motives of the introducer;-- to make clearer the prohibition on rewarding introducers;-- to regulate how and when solicitors can pass client's money to introducers;-- to limit contractual referrals to where the introducer also provides a service to the client;-- to allow payment for genuine marketing schemes;-- to ensure transparency of solicitors' and introducers' costs; and-- to make clearer the solicitor's responsibility for ensuring introducers comply with the code;Does the draft code m eets these aims and if not, why not?Specific questionsThe Council has concerns about the proposed draft code, and recognises that this is a difficult balancing exercise.

As well as any general comments solicitors have, the Council wants views on the following specific issues:(a) Do you agree with the general thrust of the new draft? If not, why not and what suggestions would you make for regulation of referrals?(b) Is the new draft clear? If you apply the draft to any current arrangements you have, is it immediately apparent that they do or do not comply with the code?(c) Is it enforceable? Many solicitors have expressed concern that the current code is not taken seriously and is not rigorously enforced.

This has lead to dissatisfaction as the solicitors who have disregarded the current code are believed to be gaining a commercial advantage, without the threat of any serious disciplinary sanction.

Do you think the draft code is enforceable?(d) Is it fair or sensible to control some schemes by waivers? The draft prohibition on payments for referrals is wide enough to catch some sensible marketing schemes such as AccidentLine, and so an exclusion has been made for 'genuine marketing schemes' as defined in s.2 of the draft code.

The definition would exclude schemes where the payment by the solicitor varies with the number of referrals -- as happens with AccidentLine.

AccidentLine operates with the benefit of a waiver of the current code, and will be able to apply for a waiver under the new code.The Council is concerned that, without the full definition in the present draft code, the marketing scheme exception may create a larger loophole than intended.

The waivers system allows some control.

Others maintain that to make regulations where waivers will inevitably be required is unacceptable -- what do you think? Are there any other schemes that would be caught by the proposed code?(e) What is your view of what constitutes an 'inducement'? The notes to the draft include a definition of inducement.

In the list of examples of what constitutes an inducement the word 'hospitality' is used.

Is this too wide a definition? If so, where should the line be drawn and how would you define the line?(f) Do you think that s.1(2) of the draft should make it clear that references to solicitors are references to those with practising certificates?(g) Do you think the draft code, being written in general terms, can be satisfactorily applied to all types of firm and to all types of work? If not, what suggestions for improvement do you have?Please send views on the draft code and the questions raised to Jeanette Lucy, The Law Society's professional ethics division, the Law Society, Ipsley Court, Berrington Close, Redditch B98 by 18 December 1998.SOLICITORS' REFERRAL CODE [1998]Made by: the Council of the Law Society with the concurrence of the Master of the Rolls;Date: [date of the Master of the Rolls' concurrence]Authority: Rule 3 of the Solicitors' Practice Rules 1990;Replacing: the Solicitors' Introduction and Referral Code 1990;Regulating: the referral of clients to and by solicitors, registered foreign lawyers and recognised bodies practising in England and Wales.Section 1 -- introduction(1) This Code applies to referrals to solicitors and by solicitors.(2) This Code does not apply to referrals between solicitors and-- other solicitors-- barristers-- lawyers of other jurisdictions.(3) This Code is to be interpreted in the light of the notes.(4) All references to individual practice rules are references to the Solicitors' Practice Rules 1990 and all words have the meanings assigned to them in Rule 18 of those rules.(5) This Code will come into force on [date unknown]Section 2 -- principlesThe following principles apply to all referral arrangements.(a) Solicitors must comply with practice rule 1, particularly in respect of:-- the solicitor's independence and integrity;-- a person's freedom to instruct the solicitor of his or her choice;-- the solicitor's duty to act in the best interests of the client; and-- the good repute of the solicitor or of the solicitors' profession;(b) Solicitors must give their clients clear information about any payments they make to their solicitor and must ensure that any sums payable to an introducer are clearly distinguished from the solicitor's own fees and the purpose and destination of such payments are properly explained to the client.(c) Solicitors must give their clients impartial advice which has not been affected by the relationship between the solicitor and an introducer, the interests of an introducer or the solicitor's reliance on an introducer as a source of business.(d) Potential clients should be referred to a solicitor on the basis of the solicitor's ability to do the work not because the introducer has a financial interest in making the referral.(e) Solicitors must comply with the spirit as well as the letter of the code and must not enter into arrangements which have been devised to avoid the provisions of the code.(f) Solicitors must inform introducers, with whom they have arrangements for the introduction of clients, of the provisions of this code and the relevant provisions of the Solicitors' Publicity Code.(g) Solicitors must always communicate directly with the client to obtain or confirm instructions, when providing advice and at all appropriate stages of the transaction.(h) Solicitors should not become so reliant on any source of referrals that this may affect their ability to act in the best interests of their clients.Notes(i) Each firm must keep a record of agreements for the referral of business.(ii) Firms should review their referral arrangements regularly to ensure that they have complied with the requirements of the code and consider whether the proportion of the firm's business coming from a particular source of referral should be reduced.(a) In considering whether to reduce the amount of work coming from a particular source of referral the firm should take into account:-- the percentage of the firm's income arising form that source;-- the number of clients referred from that source;-- the nature of the clients and the nature of the work; and-- whether the introducer could be affected by the advice given by the firm to the client.(iii) Practice rule 9 prevents a solicitor entering into an arrangement with a claims assessor for the introduction of personal injury clients to the solicitor.(iv) Practice rule 12 deals with referrals in the field of investment business.

In particular it prevents a solicitor acting as an appointed representative.Section 3 -- payments or inducements to introducers(1) A solicitor must not directly or indirectly, make any payment, or provide any other inducement, financial or otherwise, to a third party in connection with the referral of business to the solicitor.(2) This section does not prevent a solicitor making a payment in respect of a marketing scheme which refers potential clients to the solicitor, provided that:(a) the scheme advertises the solicitor's services direct to members of t he public;(b) the amount paid by the solicitor does not vary with the number of clients referred to the solicitor;(c) in making the referral the introducer does no more than take brief details from the potential client and details of the nature of the potential client's enquiry;(d) the solicitor informs the introducer of the provisions of this code and the relevant provisions of the Solicitors' Publicity Code and the introducer does nothing which would breach such provisions if done by the solicitor.(3) This section does not prevent a solicitor making a payment to an introducer on behalf of a client, out of client's money, including a payment under section 4 of this Code, provided:(a) the client has agreed to make the payment before being referred to the solicitor; and(b) the payment is clearly identified to the client as a payment to the introducer and is distinguished from the solicitor's own charges.Notes(i) 'Inducement' may include, for example, hospitality, entertainment or gifts offered with the sole purpose of influencing an introducer's decision to refer clients to the solicitor.(ii) Solicitors are reminded that a payment to an introducer in respect of each client referred would amount not only to a breach of this section but also of Practice Rule 7.(iii) Some introducers may purport to charge solicitors for preparatory work done by the introducer in connection with a client's matter, such as taking initial details of the circumstances giving rise to the client's claim or the client's financial circumstances or requirements.

Such charges are often described as 'administrative fees'.

Such a payment by a solicitor would breach both this section and Practice Rule 7, unless it was made in accordance with section 3(3) above.Introducers' fees to clients which are collected and passed on under this section, or section 4 below, are not disbursements and should not be described as such in a solicitor's bill or other written notification of costsSection 4 -- introducer to be responsible for solicitor's fees(1) Where a solicitor has agreed with an introducer that the introducer will be responsible for the solicitor's fees in respect of work done by the solicitor for the introducer's clients, the solicitor must ensure that:(a) the agreement complies with this code;(b) the agreement is set out in writing and a copy is available for inspection by the Law Society or the Office for the Supervision of Solicitors;(c) before the solicitor accepts the referral, the client is notified in writing of:(i) the nature and extent of the services to be provided by the solicitor;(ii) the total charge being made to the client by the introducer; and(iii) the amount the solicitor is charging the introducer for providing services to the client;(d) the charges for the solicitor's services do not vary according to whether or not the client takes other products or services offered by the introducer and the cost and availability of other services provided by the introducer is not affected if the client chooses to instruct a solicitor of his or her own choice.(2) A solicitor may only have an agreement under this section with an introducer who offers to the client a service which is of genuine added value to the client and which is related to the work the solicitor will be asked to carry out.(3) A solicitor may not enter into an agreement under this section in relation to conveyancing with an introducer who is a seller or seller's agent and conveyancing services are to be provided to the buyer.(4) Any publicity of an in troducer which refers to any service that may be provided by the solicitor under this section must comply with the Solicitors' Publicity Code and in addition:(a) any reference to the solicitor's charges must be clearly expressed separately from charges for other services; and(b) the publicity must not suggest that different charges for the solicitor's services would be made according to whether or not the customer takes other products or services offered by the introducer.Notes(i) A payment to a third party on behalf of a client can only be made with the client's consent.

A solicitor could not, for example, agree in advance with an introducer that the solicitor would collect and pass on the introducer's fee in every case.

Solicitors should also bear in mind Rule 7 of the Solicitors' Accounts Rules 1990, which restricts the circumstances in which client's money can be withdrawn from client account.

It would not, for example, be proper for a solicitor automatically to deduct from completion monies a sum owed to an introducer which included the solicitor's own fee (as opposed to the situation where the client is paying the solicitor and the solicitor is entitled to deduct his or her costs from client account provided the client has been issued with a bill or some other written intimation of costs).

If the client refuses to authorise payment the introducer's charges the solicitor must look to the introducer for payment of the solicitor's fees.(ii) It would be considered a breach of Practice Rule 1 (in relation to the best interests of clients) for a solicitor actively to encourage introducers to charge customers a fee for being referred to a solicitor or for any other service which is not part of the introducer's normal business and of real value to the client .

It would equally be a breach of Practice Rule 1 for a solicitor to suggest entering into an agreement under this section simply to enable the introducer to charge his or her customer such a fee.(iii) See also notes to section 3 above.Section 5 -- Referral of clients by solicitors(1) If a solicitor recommends that a client use a particular firm, agency or business, the solicitor must do so in good faith, judging what is in the client's best interest.(2) A solicitor should not enter into any agreement which would restrict the solicitor's freedom to recommend any particular firm, agency or business.