The 700 personal injury firms that worked under The Accident Group (TAG) scheme could be landed with a bill for more than £40 million after the Court of Appeal ruled that they must pay back money claimed for investigations because they amounted to referral fees.

Upholding the May 2003 decision by Chief Master Peter Hurst on tranche two of the TAG test cases, Lord Justice Buxton ruled last week that the £310 fees paid to TAG subsidiary Accident Investigation Ltd breached the then introduction and referral code and so were irrecoverable.


'[It] was illegal for the panel solicitor to pass on [responsibility for the fee] to his client,' he said. 'I hope that we have been told that steps have now been taken by panel solicitors to regularise their clients' position.'


Stewart McCulloch, personal injury head at north-west firm Mace & Jones - which acted for the claimants - said skeleton arguments had suggested that the ruling would affect 109,000 cases, although it was possible that firms might end up refunding fees on 140,000 claims. This could amount to some £43 million.


In another blow to the TAG firms, Lord Justice Buxton also agreed with Master Hurst that the after-the-event premiums claimed - £840 for 2000 and £997.50 for 2001 - should be slashed to £450 for 2000 and £425/£525 for the two schemes that ran in 2001.


He also questioned whether the appeal should have been brought at all, because Master Hurst had already dealt with the issues and no questions of principle were raised on appeal.


Mr McCulloch said the ruling was disappointing, but insisted that the appeal was justified because the situation had been so uncertain. 'If we had not brought this case to a definitive appeal, we may have seen 109,000 cases at least... all being litigated through the county courts,' he argued.


London-based Beachcroft Wansbroughs acted for the defendant insurers. Strategic litigation head Andrew Parker welcomed the court's 'clear message' on the issues. 'There are a lot of claimants out there who have had these fees deducted from their damages and need to be repaid,' he added.


The Law Society said it was considering the ruling before deciding what action to take. Chief executive Janet Paraskeva added: 'We welcome the fact that such a complex situation has been clarified and solicitors now know the position.'