Referral fees in personal injury cases

Sections 1 to 3 of this briefing paper deal with the law in England and Wales. Section 4 deals with the position in Scotland.

England and Wales Referral fees

A referral fee is a payment made for the referral or introduction of a client or potential client. Referral fees and arrangements can take different forms. Although they are also used in other commercial relationships, they have attracted particular attention when they involve the legal profession.

It has been argued that referral fees have added to the high costs and volume of personal injury litigation; this is one of the factors associated with increases in motor insurance premiums.

Ban on payment or receipt of referral fees in personal injury cases

Since 1 April 2013, it has been a regulatory offence in England and Wales to pay or receive referral fees in personal injury cases. The law was changed by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO). This ban applies to regulated persons including solicitors, barristers, legal executives and claims management companies, and to insurers.

Referral fees in other types of legal case

The Legal Services Board (LSB), which is the independent body responsible for overseeing the regulation of lawyers in England and Wales, has published guidance which is relevant for other types of case. This requires regulatory bodies for lawyers to ensure that consumers know when referral fees are in operation and to whom they are being paid.

Consultation on futher statutory ban

The Government has consulted recently on introducing a statutory ban on the payment of referral fees to advocates in publicly funded criminal defence cases. The consultation closed in November 2015. The Government has not yet published a response.

The position in Scotland

In Scotland, advocates are prohibited by their professional rules from entering into arrangements by which a commission or referral fee is paid to any third party as a consideration for referring work.

There is a restriction on the payment of referral fees by solicitors but not a ban.

The final report of the Taylor Review of the costs and funding of litigation in Scotland, published in 2013, did not recommend a ban on referral fees or payments in kind for solicitors in Scotland. It also did not recommend a financial limit on permissible referral fees or services amounting to payments in kind. However, Sheriff Taylor did make recommendations relating to the future regulation of referral fees and recommended a ban on cold calling of potential clients by claims management companies.

The Scottish Government committed to consulting with the Law Society on the topic of referral fees.