Legal Aid, Sentencing and Punishment of Offenders Bill

Debate between Lord Clement-Jones and Lord Hunt of Wirral

Wednesday 1st February 2012 Lords Chamber

[Lord Clement-Jones]

My Lords, in moving Amendment 165, I shall speak to Amendments 167 and 168. We are still on Clauses 54 and 55, but we are dealing under these amendments with a rather different set of considerations. Both my noble friend the Minister and the noble Lord, Lord Bach, have mentioned the report from the noble Lord, Lord Young of Graffham, Common Sense, Common Safety. He was explicit in stating:

“The problem of the compensation culture prevalent in society today is, however, one of perception rather than reality”.

I suspect that a major reason for the public’s perception that a compensation culture exists has been driven by the actions of ambulance-chasing claims management companies. The existence of referral fees is another major cause of that perception. I very much support the Government’s attempt to solve the problem with Part 2 of the Bill, but legislation designed to end their influence must be watertight. In recent years, it is clear that there have been differing views on how to achieve this. Insurers allege that referral fees are directly responsible for the enormous increase in motor insurance premiums; others allege that insurers themselves have profited from receipt of referral fees for several years by selling details of their customers to panel solicitors or claims management companies. As we have heard from a number of noble Lords, Lord Justice Jackson in his review of legal costs, which reported in 2010, recommended that referral fees in personal injury cases should be banned. Others, however, such as the Association of Personal Injury Lawyers, fear that a ban will simply drive fears underground.

The insurance industry does not agree that transparency is sufficient and has welcomed the proposed ban. So too has the Law Society, of which I am a member, but it wants it extended beyond personal injury cases. Others, such as the right honourable Jack Straw, want to go further and make it a criminal offence—not just a matter of regulation—to solicit, offer or pay referral fees in road traffic accident claims. He proposed an amendment to the Bill to that effect last November. The Justice Select Committee, under the chairmanship of my right honourable friend Sir Alan Beith, believes that it should be punishable with a custodial sentence. This has been rightly resisted by the Government on the basis that circumstances could be very varied and complex and best dealt with by the regulator. I believe that the current provision strikes the right balance.

There are a number of issues, however, that arise in the course of consideration of the ban. First, the Legal Services Board highlighted the difficulty of defining referral fees. The Motor Accident Solicitors Society, in its evidence to the Transport Select Committee, highlighted the importance of a definition being wide enough to cover all potential commission fees, administrative costs, transfers and any other payments that may be disguised.

Secondly, the purpose of a ban on referral fees is to reduce insurance premiums in future. But how is that to be judged? The benefits derived from a ban may not necessarily be passed on to consumers. Indeed the impact assessment of the proposed ban admits that, overall, claimants might lose out from a ban on referral fees on personal injury cases, with individuals expected to be affected more than business. However, lawyers are apparently likely to incur no net additional costs.

Thirdly, are any other sectors in contemplation that could be activated by Clause 54(4)(b)? Last October, the House of Commons Justice Committee, to which I referred earlier, called for that ban to be extended for other types of case. My right honourable friend Sir Alan Beith, chair of the committee, said that it was “disappointing” that the Government had chosen to limit its enforcement capacity for the most serious cases of abuse of personal information. He added:

“It is likely that Ministers will have to return both to this issue and to the issue of referral fees in areas other than personal injury, where they are taking welcome action”.

It is important, however, that the ban extends to the full range of malpractices. They include nuisance marketing in personal injury, specifically advertising in hospitals, cold calling and spam texts; third-party capture, which was debated earlier; financial incentives to claim; selling of contact and case details of personal injury victims without their consent; auctioning claims to the highest bidder; and marketing that is not accompanied by a service to filter out spurious claims. This is the reason for Amendment 165. The amendment would ban nuisance marketing, which fuels perceptions of a compensation culture and impacts on the ability of genuine accident victims to obtain redress. It would have the benefit of driving the really unscrupulous operators out of the market.

Health Minister Mr Simon Burns recently told English NHS hospitals that it was not acceptable to display adverts for law firms that encouraged no-win no-fee compensation claims. Surely, however, any conflict with the Compensation Act 2006, which allows businesses to operate in NHS trusts with the approval of the facility’s management, must be resolved through primary legislation.

However, there must be clear exceptions. National Accident Helpline exists as a national brand for the marketing activities of more than 100 leading solicitors’ firms around the country. They have told us that this scale of marketing allows tens of thousands of people who would otherwise find it very difficult to access legal support to obtain legal representation and pursue legitimate claims, and that they—the NAH—strictly filter those who respond to marketing. Every year, it tells more than 150,000 people who contact it that they do not have a claim. The NAH contends that if such legitimate marketing, already regulated by the ASA and others, were to be banned, thousands of genuine accident victims would be left without legal representation. That is the reason for Amendment 167.

The ban on purely commercial referral fees must exclude provision of legitimate marketing services that enable innocent injury victims easily to access the requisite legal representation. The ban should also exclude other services under a scheme, such as sales, marketing, product development, vetting of clients, upholding solicitor standards and debt control. Amendment 168 would remove Clause 55(9), which is potentially very damaging to the ability of accident victims to obtain high-quality legal representation.

Some believe that the ban could also be read as banning or capping the legitimate costs of genuine, high-value services. These include the provision of necessary medical reports for clients, quality assurance for solicitor firms, sales and product development. To ban or limit those commercial activities would drastically restrict the ability of legal firms to offer the best advice to genuine claimants. My noble friend the Minister will, I hope, be able to give assurances that any cap excludes these legitimate services such as I have mentioned. I beg to move.

[Lord Hunt of Wirral]

My Lords, I shall speak to Amendments 166A and 166B, standing in my name on the Marshalled List, and to declare my interest as a partner for 44 years in the international commercial legal firm DAC Beachcroft LLP, and the other interests contained in the register.

This gives me an opportunity to respond to one or two comments in the earlier debate. In this important group of amendments we need to focus on the underlying problem of legal costs as much as on the problem of referral fees. As my noble friend Lord Clement-Jones just reminded us, the Government are implementing another of the main recommendations of Lord Justice Jackson’s review of civil litigation costs. Perhaps I should mention here my personal pride that one of my partners, Andrew Parker, was an assessor to Lord Justice Jackson's review.