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Opinion: referral fees

25 March 2008

Referral fees are a controversial issue. Timothy Foster, senior partner of Foster Harrington in Surrey, gives his opinion.

The one word cropping up over and over again is “pragmatic”. On close analysis of all the correspondence and articles on this issue, “pragmatism” stems from the fear of solicitors losing work to other parties who would be able to pay bribes/referral fees. May I suggest that mere “pragmatism” is not a sufficient justification for allowing a system where our independence is compromised, our integrity lessened and standing diminished and the interests of the public trampled on.

It is pragmatic for an international company wanting to enter into contracts in the Third World to pay backhanders/bribes/ referral fees, but it is strictly against the law. It is worth remembering that the authorities considered making it a criminal offence to pay referral fees in 2003 but they changed their mind and instead allowed them.

The public want to know that the solicitor is batting purely for them and not, at the back of his mind, worrying about upsetting the introducer. The purpose of the rule against fee-sharing is to protect solicitors’ independence and professional judgment for the ultimate public benefit. Referral fees are just fee-sharing by another name.

As indeed Rule 9 sets out, it is irrelevant how the “payment” is described. The SRA must by their own rules consider the substance of any relationship rather than the mere form.

The public are being denied the right to pick their own solicitor. The SRA quietly omitted this from the new Rules in 2007. This is an important right and goes to the heart of justice. Once the ban is reintroduced this right can be reinstated. It was quietly dropped without any discussion with the profession or the public. Indeed when it was brought to the attention of members of the Law Society and some at the SRA, some were not even aware that it was being dropped and they were on the committee!

A referral fee is not money paid out of thin air. If the solicitor didn’t have to pay the referral fee he could do the work at reduced cost. As the conveyancing panels operated by estate agents get more and more into their groove, they now stipulate fees to their panel of solicitors. Indeed, we know that some in fact make the charge directly to the clients and then just pay a small fraction to the solicitor. It was reported over a year ago to the Law Society and the SRA that this appears to break the law against cartels and price-fixing. Nothing appears to have been done.

As at November 2007, 1,911 firms had entered into referral fee arrangements against 7,987 that had not. Those paying referral fees are getting all the work at the expense of those that don’t, driving the latter out of business, literally. Judge Michael Cook gives an interesting analysis in Cook on Costs 2008. Bribe-paying firms get 100 times the personal injury work that non-bribe-paying firms get. The other 26 countries in Europe all consider it necessary that there is a ban on referral fees in order to protect the solicitors’ independence and professional judgement for the ultimate public benefit.

We all know in our heart of hearts that it is wrong to buy work and traffic in clients. Many of us entered this profession to make a difference and unless the ban is soon reinstated, many of the quality solicitors who are not prepared to pay bribes, will have their firms destroyed.

A solicitor should always act in the best interests of his client and put those interests before his own interests or those of fellow members of the legal profession. The Law Society and the SRA are not putting the interests of the public first. It is important that the real facts on this subject are now brought into the open and this ever increasing public scandal is given a full airing and public debate.

Categorised in:

Regulators Procedures EU & International