“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 professions.” That’s the definition used in a parliamentary briefing paper. In other words, a kickback. In the legal profession, it would mean either that the barrister is paying the solicitor a portion of the client’s fee in order to persuade the solicitor to give the work to the barrister. Or, just as likely, the solicitor asks for the referral fee as a condition of giving the work to the barrister. Referral fees are banned in general by the Bar Standards Board for barristers in their Code of Conduct, so it is hard to get any evidence, other than anecdotal, about their prevalence. They are specifically banned in relation to personal injury cases by the Legal Aid, Sentencing & Punishment of Offenders Act 2012.
It is glaringly obvious that referral fees should be outlawed in every area of law, and I am delighted that just a few days ago the Legal Aid Minister announced the beginning of a process to do just that. What is so bad about them? Imagine that you go to consult your doctor, who diagnoses a bad back; then he says that he will refer you to a colleague consultant in the same building, whose specialty is known to be dermatology, but he assures you that this consultant is just the one you need. Unbeknownst to you, the dermatologist is paying the GP to refer patients to him, regardless of their ailment. Or it may be that the GP has demanded a payment for every patient referred to the dermatologist. It is obviously shocking, harmful and corrupt. In professions like law and medicine, you the client need to be confident that you will be referred to the person best qualified to help you, regardless of money changing hands between those involved in your care. Moreover the payment of referral fees is clearly going to add to the overall cost of advice, an expense ultimately passed on to the client.
It is astonishing that anyone could contemplate the practice of referral fees at all. Yet for years the Legal Services Board encouraged the notion that they are OK, in consumer interests they said. The Bar and its regulator were aghast. The LSB decided that referral fees could be paid as long as the client knew that this was the case and to whom they were being paid. The LSB wanted the outright ban to be confined to the statutory one, relating to personal injury cases. This approach was clearly nonsense, as the client would not know the significance of the transaction, and if he or she did know, then they would lose confidence in the process of being referred to a specialist. Referral fees deny the client the freedom of choice that they should have in their legal affairs.
I was always puzzled by the LSB acceptance of this – to my mind – unethical and expensive practice. I put it down to the fact that the LSB Consumer Panel, from whom they took advice on this issue, had at the time quite a few members whose own organisations, e.g. a political Party or a Union, benefited from referral fees paid by solicitors’ firms to the Party or Union for every member referred to them for legal advice. http://www.telegraph.co.uk/news/politics/labour/8830715/Labour-cashing-in-on-no-win-no-fee-lawyer-links.html.
There is no longer any evidence that I can find on the internet supporting this. No doubt they saw it as a useful practice, helping members, but that link should have been declared. I thought that the LSB support of the practice of referral fees left a permanent question mark over its judgment.