Jack Straw and referral fees
Jack Straw introduced a 10 minute rule Bill in the House of Commons on 13 September 2011 seeking to ban referral fees. The Government has adopted that Bill. Referral fees will be banned in personal injury cases and it is likely to be a criminal offence, punishable by two years imprisonment, to pay or receive or offer or solicit a referral fee in a personal injury case.
I have no problem with that. I do have a problem with Mr Straw, a Cabinet Minister for the whole of the 1997-2010 Government, and Justice Secretary and Lord Chancellor from June 2007 to 6 May 2010 suddenly discovering referral fees.
The Compensation Act 2006, which licenses Claims Management Companies (CMCs) and specifically regulates and authorizes the payment of referral fees, came in to force on 23 April 2007, just weeks before Mr Straw became Justice Secretary and Lord Chancellor. His own department, the Ministry of Justice, is responsible for licensing Claims Management Companies, and the list of such companies appears on the MoJ’s website.
Thus for most of the lifetime of regulated referral fees Mr Straw was the Minister directly responsible for them.
Yesterday, 6 October 2011, the Legal Services Act 2007, surely the most disastrous piece of legislation of the last Government, and one of the worst in the country’s history, came in to effect.
It allows all comers, subject to minimal requirements, to sell legal services. The Claims Management Companies that Mr Straw dislikes so much will become Alternative Business Structures (ABSs) (the Act’s name not mine!) and will practise law.
Thus the ban on referral fees will be utterly meaningless and irrelevant as the sellers of the work, the Claims Management Companies – will simply do the whole case themselves, or carry on selling the work to other ABSs and law firms as there has never been any restriction on payment of referral fees between lawyers.
The whole purpose of the Legal Services Act is to allow non-lawyers to compete with lawyers on a level playing field. Preventing Claims Management Companies which are ABSs from trading work in the way that solicitors can would defeat that objective.
In any event CMCs which are ABSs can instruct the solicitors that they currently sell clients to on an agency basis. Thus at present a CMC sells a client whose claim attracts costs of £1,200.00, for a £700.00 referral fee.
Now the CMC can simply instruct the solicitor on an agency basis and pay the solicitor £500.00, keeping the balance of £700.00.
Thus the CMC receives £700.00 and the solicitor £500.00, exactly as now and for doing exactly the same work.
Like Theresa May and the Human Rights Act cat, Mr Straw must know this.
The Legal Services Act 2007 received Royal Assent on 30 October 2007 at which time Mr Straw was the Lord Chancellor and the Justice Minister. He is also a barrister. Hate it or love it, everyone regards it as one of the most significant Acts ever in relation to law. It is inconceivable that Mr Straw was unaware of its consequences – its whole purpose is to allow CMCs and others to compete with lawyers.
Here is the link to Mr Straw’s speech in the House of Commons seeking leave to introduce the Bill:
Reading this no-one would ever have any idea that it was Mr Straw’s Government that has caused all of these problems, and specifically Mr Straw himself who was the Cabinet Minister responsible when the Legal Services Act became law.
Thus Mr Straw himself has ensured that his proposed ban on referral fees is totally meaningless and irrelevant, but of course it attracts favourable comments in the Daily Mail, and uncritical publicity on the BBC’s website.
I would prefer not to be governed by people like Mr Straw and Ms May.