Legal Aid, Sentencing and Punishment of Offenders Bill

Lord Pannick Excerpts

Wednesday 1st February 2012 Lords Chamber

[Lord Beecham]

My Lords, the amendments in this group refer to referral fees. Recent years have seen an explosion of growth among what might best be described as parasitic commercial organisations—claims management companies and the like—seeking to obtain part of the financial stream that flows when litigation occurs by charging for the referral of clients to lawyers. Paradoxically, it might be thought, some of this is fuelled by the very insurance companies that complain about the compensation culture and the costs of litigation. Clause 54 very properly seeks to prohibit referral fees to and by regulated persons, who will include claims management companies, lawyers, insurers and perhaps others. Perhaps slightly counterintuitively, for the purposes of the legislation a referral fee need not take the form of a payment, but could, for example, be an offer by a lawyer to take on work at a reduced rate or for no fee. However, the potential for abuse of the system is apparent, and the Bill seeks to address it.

The amendments tabled in my name and in the names of other noble Lords seek to improve the wording of the Bill. Perhaps I may briefly outline what they do. Amendment 164A would exempt not-for-profit organisations from the operation of the ban on referral fees. It would take them outside the category of regulated person for the purposes of the ban. Of course, there will be many membership organisations—charities, for example—that will come into that area. I understand that some charities refer people for legal and medical advice and any sums arising from those referrals go back into the work of the charity or the membership organisation. That seems a perfectly reasonable category to take out of the provisions of the Bill.

Amendment 164B is a consequential amendment making it clear that regulated persons would be businesses carried on for profit. It is a corollary of Amendment 164A, as is Amendment 164C, which is another consequential amendment. More substantively, Amendment 166 provides:

“A regulated person is not in breach of this section if … that person is a solicitor; and … the body to which the payment is made for the prescribed legal business is a registered charity that has been granted an exemption by the claims management regulation unit”.

Again, both the person making the payment—the solicitor—and the body receiving it—the charity—would be taken out of the scope of the provision.

We support Amendment 166ZA, tabled by the noble Lord, Lord Pannick. The noble Lord will of course address this matter, but the thrust of the amendment seems to be to except from the ban a referral from one solicitor to another. This can easily arise in the course of practice where a case, either from the outset or it becomes apparent, is somewhat beyond the experience and expertise of a particular firm but a good deal of work may have been done on it and in any event it is not unreasonable for a referral fee to be paid.

Perhaps more significant is Amendment 166ZB, in the names of the noble Lords, Lord Martin of Springburn and Lord Elystan-Morgan, and my noble friend Lord Collins of Highbury, which would take out of scope of the ban the relationship between trade unions and their members. I speak with long experience of these matters because I personally acted—the firm, for which I am now an unpaid consultant, continues to act— for a number of trade unions. The relationship there is not simply the passage of a name of a member but, as your Lordships will no doubt hear, one in which a good deal of administration is required and where the union is performing a service on the part of the member that will ultimately benefit the conduct of the case and therefore the solicitors involved in it. Again, it seems quite reasonable in that instance that a fee might become payable and it is unnecessary to bring that sort of relationship within scope.

Finally, Amendments 169 to 171 to Clause 56 are connected amendments. Instead of allowing the Treasury to make regulations enabling the Financial Services Authority to monitor and enforce compliance, they make this an obligation. Amendment 169 substitutes “shall” for “may” and Amendment 170 requires rather than enables the FSA to take action. Similarly, under Amendment 171 it would become a requirement for the Treasury to make rules outlining circumstances where payments are not to be treated as a referral fee. This echoes the Lord Chancellor’s powers proposed under Clause 55(8).

None of this seeks in any way to detract from the thrust of the Bill’s proposals but rather tailors them to the realities of the issues that the Bill seeks to address and to make better sense of what is in principle a sound proposal that the Opposition support. Accordingly, I beg to move.

[Lord Pannick]

My Lords, Amendment 166ZA in this group is in my name. I am grateful to the noble Lord, Lord Beecham, for expressing support for it.

The amendment would exempt solicitor-to-solicitor referral fees from statutory prohibition. I am puzzled as to why the Government think it is appropriate to impose a statutory prohibition on such referral fees. I am puzzled for two reasons. First, there is a public interest in solicitors having an incentive to transfer a case—with the consent of the client, of course—to another solicitor; for example, if the latter solicitor has greater expertise or if the former solicitor will not be able to deal with the case expeditiously. Secondly, any such referral fees from one solicitor to another are regulated by the SRA, which has ample powers to impose sanctions on either of the solicitors if there were any abuse of proper professional standards to the detriment of the consumer.

I ask the Minister—and it is a genuine inquiry—why, in the light of these factors, it is necessary or appropriate to regulate referral fees paid directly from one solicitor to another.

[Lord Clinton-Davis]

Does the noble Lord agree that it is common practice for one solicitor to transfer a case to a solicitor in another part of the country? Speaking from personal experience, I quite often had to deal with cases in London that were transferred from the north of England because it was more convenient to deal with the insurers in that way.

[Lord Pannick]

Yes, I agree. Of course, the Bill will not in any way prohibit such transfers; it will prohibit only payment. However, prohibiting payment will deter what may be a very sensible economic arrangement that provides an incentive to the first solicitor to transfer to the second solicitor a case which the second solicitor can deal with far more efficiently—in the interests of the client; that is the point. As I say, all these matters are properly regulated by the SRA. If the SRA is not properly regulating it is not doing its job. I ask the Minister why and also whether there is any evidence that the SRA is not doing its job properly in regulating referral fees in relation to transfers between solicitors.

[Lord Martin of Springburn]

My Lords, Amendment 166ZB is in my name and those of the noble Lords, Lord Elystan-Morgan and Lord Collins of Highbury. Of course, I am supportive of the other amendments that have been moved and spoken to.

I note that the other amendments mention payment to charities. When I signed up to the metal workers’ union as a young apprentice, it was regulated under the Friendly Societies Act. It was the same as the insurance companies such as the Co-op, the Salvation Army or the Wesleyan—they were charities. The trade union movement has always had a tradition of not only looking at wages and conditions within the factory but trying to go beyond that to help the member and his family. It knew that there was no point in just fighting for wages and conditions alone; there were many problems outside the place of work. Often that meant that, particularly when workers were involved in an accident, the unions had to get in touch with a solicitor who was willing to help, particularly in the bad old days.

Not so long ago in my native city of Glasgow, the Kelvingrove Art Gallery—which I would recommend anyone who visits Glasgow to go and see—had an exhibition of trade union banners. Trade union banners today tend to have big messages saying “Cameron out!”—and before that it was “Thatcher out!” or, even before that, “Heath out!”—but these old trade union banners were absolute works of art. They displayed exactly what the trade was all about. I remember the coach builders’ banner; one of the members had had an accident in the street and you saw the accident—the poor man had broken his leg—and another part of the banner showed him in bed and the officers of the branch turning up, and the caption underneath was, “When I was ill, you visited me”. My point is that there was always care within the trade union movement.

I know that many people, particularly in the media, can point to the salaries of the trade union leaders and make negative comments about them. But it must be remembered that the vast majority of people working in trade unions do so on a voluntary basis without any financial help.