When is a referral fee not a referral fee asks our Law costs draftsman.

We all know that part of the Legal Aid, Sentencing and Punishment of Offenders Act banned referral fees – effective from April 2013.

Since this time, as one would expect, there has been a sharp fall in the number of Claims Management Companies. However, at the same time evidence suggests that many law firms are flouting the ban, as they believed it would not or could not be policed. Many Solicitors are unknowingly doing so and were of the opinion that as long as data was not passed between themselves and a Claims Management Company they would not be breaching the ban.

This is simply not the case, the rules are that it is deemed a referral if :-

(a) Information is passed from one person to another
(b) If arrangements are made for a person to provide legal services to a client
(c) The person providing the information is not the client

In essence, if you are still dealing with Claims Management Companies the onus is on you to prove you are not breaching the ban.

The MOJ and SRA are initially investigating 150 CMCs, they are requesting details of all dealings with Solicitors both pre and post 1st April 2013. They are demanding to see evidence of proof of change of business models since April including copies of invoices and examples of marketing in respect of any fees that have been paid.

Penalties for breaching the ban range from a £2,000 fine to being struck off!

Solicitors should be contacting any CMCs they deal with to ensure they have completed the MOJ Questionnaire and requesting to have sight of it. Essentially, as long as a documented risk assessment has been carried out regarding your relationship with the CMC has been completed and you have supporting documentation there should be no need for concern.

If you are still paying referral fees disguised as “marketing fees” or such like it is not just the MOJ and SRA you need to be concerned about. There are a group of Solicitors that intend to issue civil proceedings against named firms to obtain an Injunction restraining them from breaching LASPO.

Be warned – a referral fee is exactly what it is and there really is no place to hide!