Legal costs and referral fees

The Law Society recently announced a change of policy with a call for the reintroduction of a ban on referral fees.  The Legal Services Board said it will look at this issue as priority.

The subject of referral fees is not, in theory, one directly related to legal costs but does seem to keep cropping up.  I first became aware of the issue in the context of the sadly missed Claims Direct and Accident Group schemes.  Readers will recall that these schemes, and other similar ones, required payment by the solicitor of an “investigation fee” in respect of each case referred.  These fees were then claimed by claimant solicitors as a disbursement.  I remember the countless arguments I used to have with claimant solicitors (often senior partners) who claimed, despite all the evidence to the contrary, that these were not thinly disguised referral fees.  Such fees were indeed subsequently held to be unlawful (and therefore irrecoverable) referral fees in the Claims Direct Test Cases – Tranche 2 [2003] EWHC 9005 (Costs) and Accident Group Test Cases [2004] EWCA Civ 575.  I was always somewhat surprised that when the referral fee ban was lifted claimant solicitors didn’t start to try to start slipping these fees through again in their claims for costs, but this didn’t seem to happen.

Another link between referral fees and legal costs has recently come to the fore in relation to claims that the former drives up the latter and whether this is the explanation for the 20-35% gap between the amount charged by claimant and defendant lawyers (see article).  This same issue has been highlighted by Lord Justice Jackson in his review of Civil Litigation Costs.

The impact of any return to a ban on referral fees will be entirely dependant on whether it is properly enforced; something which never previously happened.

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