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Teasing out Taylor

14 April 14

Professional Practice column: the Taylor review and what it might mean for referral fees

by Fiona Robb

As well as providing professional practice advice, the solicitors in the Professional Practice team act as secretaries to various Law Society committees, including Professional Practice, Property Law, Technology and Civil Justice. Fiona Robb is secretary to the Civil Justice Committee.

The Professional Practice team collates and shares information from the various committees as a way of anticipating changes to practice and of identifying areas where new guidance might be required for the profession. Current issues arise from the Civil Justice Committee’s consideration of a number of issues arising from Sheriff Principal Taylor’s funding review, including: qualified one-way cost shifting (QOCS); the cost of litigation; damages-based agreements; and referral fees.

In relation to referral fees, the committee has welcomed Sheriff Principal Taylor’s comments regarding the non-existence of a compensation culture in Scotland, and agreed that, in Scotland, far fewer claimants have engaged the services of claims management companies. The Professional Practice team receive calls and enquiries around referral fees and how they operate on a fairly regular basis, and this is an area of the review that the team will continue to monitor, taking account of the views of the Civil Justice Committee.

The committee discussed whether there was a market for more personal injury claims in Scotland. Up until now, there has been no financial incentive and hence no need for claims management companies.

The committee noted the comments made by Sheriff Principal Taylor on p 237, para 74 of the review, that: “Given the difficulties that were articulated with regard to policing a ban on referral fees, or a cap on them, a number of respondents opted for letting the market determine the level of referral fees. The functioning of the market for referral fees in England & Wales requires that I consider this option with extreme caution. Referral fees for personal injury claims in England & Wales rose by more than 100% between 2005 and 2009, from £400 to £850-£1,000 per referral. A number of reasons have been given to explain the market’s failure to put sufficient pressure on fees in the personal injury market. In particular, costs shifting – in the absence of proper regulation – was identified as the root of the market’s failure. Where costs shifting is absent, as in the conveyancing market, evidence suggests that conveyancing fees are lower among firms paying referral fees.”

The review goes on to suggest that only regulated bodies should be entitled to charge a referral fee. This is contrary to the current position in England & Wales, where a ban on the payment of referral fees in personal injury cases was introduced by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO).
The review also proposes that a “regulator” of claims management companies should be set up, and there should also be a prohibition on such companies cold calling prospective clients.

There is, however, no explanation of who would provide the regulation to claims management companies.

The current position in Scotland is that rule D9.2 of the Law Society of Scotland Practice Rules 2011 prohibits solicitors sharing any fees or profits with an unqualified person.

 

There is, however, no prohibition on referral fees being paid to an introducer of business, provided they are paid by the client as an outlay in the solicitor’s fee and fully disclosed in the terms of business letter issued to the client at the outset and in the fee note when it is rendered.

So what is likely to happen? If the Scottish Government implements the review’s recommendations on referral fees, the existing rule will change and it will be easier for solicitors to pay referral fees. If this happens, there are likely to be implications both for personal injury solicitors and the wider profession, depending on the definition of “regulated”.

Estate agents are already regulated by the Property Ombudsman. So, from a professional practice point of view, there are likely to be changes to the prohibition on the sharing of fees – the question is, will this change come from the implementation of the Taylor review, or the Legal Services (Scotland) Act 2010?

If you have views or comments to share, please pass them to Fiona Robb. In the meantime, the Professional Practice team are on hand to advise on matters as they develop

Fiona J Robb is a solicitor in the Professional Practice Team, where she has worked for eight years. She worked in personal injury litigation for more than 10 years before joining the Society. Fiona can be contacted on 0131 226 8896 or on fjrobb@lawscot.org.uk

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