Professional Liability, Other Areas of Law
Professional Disciplinary News Archive

SRA warning of clamp down following referral fee ban

SRA warns firms that the burden is on them to demonstrate they are not paying referral fees

In a recent speech the SRA’s Samantha Barrass warned firms that they risked disciplinary action if they failed to ensure that arrangements with claims management companies did not amount to the payment of referral fees. She emphasised that firms must examine the arrangements with care to ensure that they could clearly identify what they were paying for. Firms should have put in place financial strategies to deal with the ban on referral fees and failure to do so would cause a serious risk to their businesses and open them up to regulatory action. She said that firms that “recklessly trade into insolvency” will suffer practising certificate conditions or even be pursued into the Solicitors Disciplinary Tribunal (SDT).

She added: “Simply re-badging an arrangement with, for example, a claims management company (CMC) as a joint marketing scheme on the basis that the CMC does some advertising, and possibly changing the charging structure from a payment per case to a lump sum, will not be enough … we expect firms to be able to demonstrate that the payments they make can be justified on the basis of the services they are receiving, be that marketing or any other service. We will be looking at the substance of the arrangement rather than just how it is labelled.”


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Lawyers acting against former employers

The Court of Appeal in the case of Generics (UK) Ltd v Yeda Research & Development Co Ltd & Anor [2012] EWCA Civ 726 discharged an injunction obtained by the former employer of a patent attorney to prevent her acting in litigation against them. The same rules applied to a patent attorney as applied to an inhouse solicitor.

The Court considered the guidelines laid down by the House of Lords in Prince Jefri Bolkiah v KPMG [1999] 2 AC 222 on confidential information held by external advisers. The test was that it should be for the current employer to prove that there is no risk of confidential information being disclosed. Mr Justice Floyd said that though the patent attorney may not think she had any relevant information: “one’s recollection can subsequently be shown to be wrong”.

The Court of Appeal judges all agreed that on the facts there was no real risk of information being disclosed and noted that in cases where there was, a barring order could be appropriate. They did not decide the issue of where the burden of proof should lie in respect of an employed solicitor. Obiter they disagreed over whether Bolkiah should apply to employed lawyers, or whether it should instead be for the former employer to prove the risk of disclosing confidential information, as in a normal employment relationship



Law Society warns solicitors to continue to recommend independent financial advisors only despite SRA rule change or risk mis-selling claims

Law Society Chief executive Desmond Hudson said: “From the outset, the SRA’s proposals ran the risk of leaving the profession ill equipped to advise clients on which financial adviser to use for the product that they wish to procure, given a choice of a range of providers with differing interests and motivations.

“The inevitable consequence will be that solicitors may become more open to negligence claims based on that recommendation or referral or that the profession as a whole becomes embroiled in the type of mis-selling scandal that has plagued the financial services industry in recent times.

“The provision of independent advice has historically been one of the fundamental tenets of the profession. As such we would urge solicitors to disregard the liberalisation of the Handbook in this area and continue to only recommend IFAs. On this issue, under the new rules, solicitors will not be penalised for exercising discretion. We urge them to use that discretion to only refer and recommend IFAs to clients to avoid the risk of claims.”

However, he said there was an upside: “The removal of the prohibition will place a heavy onus of responsibility on solicitors to demonstrate that they and their clients are making informed decisions and that referrals will be in clients’ best interests.

“They will need to be seen to have conducted due diligence on their proposed referees before making any referral, and this will represent a major improvement on two unsatisfactory practices which currently prevail, namely giving clients a list of three local IFAs and leaving them to make their own choice, or permitting partners and fee-earners unbridled discretion to refer to whomever they wish, in defiance of any attempt at central co-ordination or quality control…

“To the extent that a formalised client referral process is about to become a compliance requirement, what may seem to many as a strange and perverse decision by the SRA may yet prove to have beneficial consequences.” See further http://www.legalfutures.co.uk/latest-news/law-society-tells-solicitors-ignore-sras-financial-services-reform-ifas-threaten-jr


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