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Jean-Yves Gilg

Editor, Solicitors Journal

Solicitors conduct under the claims management

Solicitors conduct under the claims management


In his series on the new claims management regulations Gordon Exall considers their effect on business expenses and the guidance given by the Solicitors Regulatory Authority

Duty to monitor/terminate referral agreements

The solicitor is expected to have made suitable enquiries about the way in which an introducer publicises your firm. If the solicitor becomes aware of possible breaches of rule 9 or rule 7 (Publicity), you must bring these to the attention of introducers, and if necessary must terminate a referral agreement if the rules are broken.

Improper constraints

The Guidance Notes make it absolutely clear that the introducer should play no part in the way that the case is conducted. The introducer should not, for instance, play any role in the choice of expert or counsel.

  • '12. Subrule 9.02(d)(ii) aims to prevent the introducer from influencing or constraining your professional judgement in respect of advice given to clients. For example, the choice of an expert or the decision to instruct counsel are integral to your role in advising the client. See also notes 16 and 17 of the guidance to rule 2 (Client relations) regarding arrangements with introducers which may constrain your professional judgement.'

Excepted work

Similarly the Guidance Notes make it quite clear that work cannot be accepted from introducers in relation to publicly funded or criminal work.

  • 'Subrule 9.02(h) prohibits you having a financial arrangement with an introducer in respect of criminal proceedings, or in any matter in which you will act for the client with the benefit of public funding. You would, however, not be prohibited from continuing to act for a referred client if there was a subsequent unanticipated need to obtain public funding or to represent the client in criminal proceedings. In this situation you should retain evidence as to how those circumstances had arisen'.

'Normal hospitality'

The rules cannot be bypassed by the solicitor offering 'hospitality' to an introducer in lieu of a fee. The solicitor is not permittted to provide anything more than 'normal hospitality'.

'What amounts to 'normal hospitality' (see 9.02(i)(ii)) will depend on the circumstances in every case. For example, corporate entertainment, dinners or lunches are acceptable and would not amount to payment for a referral, provided these are proportionate to the relationship with a business contact/introducer'.

'Normal business expenses'

The rules are not designed to prevent or control normal recommendations from professional associates. If you pay fees to these associates these are not regarded as referral fees so long as they are 'normal business expenses'.

'Normal business expenses' (see 9.02(i)(ii)) are payments for services provided to your firm which are totally unrelated to the referral of any client. So, for example, you would not be prevented from accepting referrals from the company with which you place your firm's indemnity or buildings insurance, or from the accountant who prepares your annual report or tax return.'

Referral to third parties

Referral to third parties are covered by the Core duties. Any referral to a third party must be in the best interest of the client. 'Any referral to a third party will be subject to rule 1 (Core duties) and 9.01, as well as 9.03. You must therefore do nothing in respect of such referrals which would compromise your independence or ability to act or advise in the best interests of each of your clients. Any agreement you enter into in respect of regulated mortgage contracts, general insurance contracts (including after the event insurance contracts) or pure protection contracts will need to provide that referrals will only be made where this is in the best interests of the particular client and the contract is suitable for the needs of that client'.

Guidance from the Solicitors Regulation Authority

If the rules are a little long-worded in relation to a solicitor's duty then a short leaflet issued by the Solicitors Regulation Authority (SRA) in February 2007 leaves no doubt on the matter.

In very graphic terms the SRA states that 'The Solicitors Regulation Authority is cracking down on solicitors whose referral arrangements compromise their clients' interests, and who undermine public confidence in solicitors'.

Solicitors are urged to consider whether their referral arrangements comply with their corder duties. In particular:

  • 'You must not allow your independence to be compromised'.
  • "You must act in the best interests of each client'.
  • 'You must not behave in a way that is likely to diminish the trust the public places in you or in the profession'.

Solicitors are told 'You must comply with these core duties as well as the detailed requirements of the rules on referrals (for example, on disclosure). So keep the core duties firmly in mind when you enter into referral arrangements and act for referred clients'.

Questions that solicitors must ask themselves

The SRA leaflet points to a number of questions that solicitors must ask themselves.

  • Do I always explain the nature of any referral arrangements and disclose any referral fees, to my client at the outset ?
  • Am I being up front about the nature of these payments?
  • Am I trying to disguise the payments as something they are not, for example adminstration or marketing fees ?
  • Do I know how the introducer obtained the client.
  • Am I sure that there is nothing in the agreement with the introducer which compromises my indepdence and/or my ability to ac my client's best interests.
  • Is the agreement between the introducer and the client fair and in the client's best interests, and if it isn't, am I able to advise my client accordingly ?
  • Am I able to advise my client independently without fear of offending the introducer and at the risk of losing a valuable stream of work ?
  • Is the introducer regulated by the regulator of claims management services, if appropriate ?

The SRA guidance is clear 'If the answer to any of these questions is 'no', you are likely to be breaching your core duties and are liable to disciplinary action'.

Further guidance and assistance can be obtained from the SRA's website at and from its ethics helpline on 0870 606 2577.

Next time Gordon Exall reviews the major points of the regulations and looks at the evidence as to how the system is working in practice

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