What price access to justice for injured people? Right now it’s somewhere between £600 and £800.

That is the going rate for solicitors who want to buy your case from the claims management company (CMC) you called after seeing its advert on television, or perhaps your insurance company, which you contacted after a car accident that caused whiplash.

Referral fees, which solicitors were banned from paying until 2004, have helped to spur a huge industry of claims middlemen, who, after highly publicised collapses such as Claims Direct and The Accident Group are now subject to statutory regulation. When regulation began in 2007 the Government expected about 500 companies to register. The number is now 3,366 and growing fast. The claims management industry’s turnover as of June last year (when there were 2,456 businesses) was put at £382 million.

Personal injury is the main business of CMCs, although a rapidly increasing number are targeting claims over financial products, such as misselling and unenforceable agreements. Sharp practices in this field are causing considerable problems, Kevin Rousell, the CMC regulator, told a claims management conference last month.

But the industry largely built on referral fees could be under threat. In his review of the costs of civil litigation, Lord Justice Jackson argued that referral fees have driven up costs and brought no benefit — they should be banned in personal injury and possibly other areas too, he said.

The judge was not persuaded by the argument made by CMCs that they have widened access to justice by making people more aware of their rights, saying that there are plenty of other avenues for people with claims to find a lawyer. Further, he said, “it is offensive and wrong in principle for personal injury claimants to be treated as a commodity”. Most lawyers would agree — the Law Society and Bar Council would both like the ban reinstated — but equally those who pay them are generally resigned to the commercial reality of referral fees.

The Jackson report is now with the Ministry of Justice, while the Legal Services Consumer Panel will announce next month the findings of its own investigation into referral arrangements (because money does not always change hands). This will inform a consultation by the Legal Services Board, which it advises, on ensuring a level playing field across the legal market.

Even if there was a move to reinstate the ban, could it be enforced? The usual cliché is that the genie cannot be put back in the bottle, and the fear is that referral fees would simply be driven underground. Lord Justice Jackson does not subscribe to this. “The vast majority of solicitors are honourable professionals and would respect such a prohibition, whether imposed by legislation or by rules of conduct,” he wrote.

However, Kerry Underwood, senior partner of the Hertfordshire firm Underwoods and a leading personal injury lawyer, believes that a ban would be difficult to monitor. “You’ve got solicitors who are totally dependent on [CMCs] for the whole of their income, making them desperate men and women,” he says. To make a ban effective, paying referral fees needs to be a criminal offence. “It has to be very, very tough to make it work.”

There are further complications. Already there is talk of CMCs cutting out solicitors and selling claims directly to insurance companies, which try to settle them direct with the unrepresented injured party. Should not-for-profit solicitor collectives sharing marketing costs be banned, a distinction that the Conservatives have drawn? Or law centres and Citizens Advice Bureaux that refer clients to firms in return for nonfinancial benefits such as training?

The consumer panel, which is focusing on advocacy services, conveyancing and personal injury, is looking for evidence either that consumers are having to pay more or are getting a poorer service because of referral arrangements. Otherwise, should consumers care as long as they get their compensation? Research by the Solicitors Regulation Authority in 2007 found widespread public ignorance that such fees existed, but once the practice was explained, consumers broadly felt they were all right as long as fees were disclosed and the independence of advice was not compromised.

In any case, this all assumes that businesses that charge referral fees will continue to do so. From October 6 next year, alternative business structures will allow non-lawyers to invest in and own law firms. There will be nothing to stop CMCs or insurers doing the whole case themselves from start to finish.

DAS, an insurer that provides white-labelled legal expenses insurance that is bolted on to many people’s home or car policy, has publicly committed to buying the Bristol law firm CW Law once allowed, with the chief executive Paul Asplin saying that he expects to handle most legal work in-house.

Meanwhile, at a Claims Standards Council conference in February, delegates were asked whether, irrespective of any referral fee ban, CMCs would either buy or merge with a law firm once permitted. The 200-strong audience unanimously predicted that they would. Given that much personal injury work is process driven, says Darren Werth, the council’s chairman and a director of Accident Advice Helpline, there is no reason why he could not create a legal arm that handles this process “at least as efficiently or more efficiently than a law firm”.

CMCs came into existence a decade ago because solicitors failed to take the marketing opportunity thrown up by the introduction of no-win, no-fee agreements for personal injury work. Now, they now face a serious battle to hold on to the legal work itself.

The author is editor of new regulation website Legal Futures: legalfutures.co.uk

Source – The Times – 08.04.10