APPENDIX 9
Memorandum by The Law Society
REGULATION OF CLAIMS HANDLING COMPANIES
The Law Society is responsible for regulation
and representation of solicitors in England and Wales. The Law
Society saw the transcript of the oral evidence given by Mr Andrew
Tucker and colleagues on 23 February, and in particular the exchanges
concerning claims handling companies. Following discussion with
the Clerk to the Committee, the Law Society submits this note
for the information of the Committee.
The Law Society recognises and shares the widespread
public concern about the activity of claims management companies.
The Society knows that there is concern that some claims management
companies attract business in undesirable ways—such as by
cold calling on prospective clients. There have also been suggestions
in the past that some claims handling companies have encouraged
prospective claimants falsely to exaggerate their injury, although
the Law Society has no direct evidence of that.
The Law Society has for some years been pressing
Government to introduce effective regulation of claims handling
companies. The Society has suggested that this could be done by
amending the definition of litigation in the Courts and Legal
Services Act 1990, so as to cover advice given in contemplation
of litigation. This would have the effect of meaning that only
those who were qualified to conduct litigation could operate claims
handling businesses on a commercial basis. Alternatively, the
Society has suggested that regulation could be achieved through
the Office of Fair Trading. The Law Society has raised this with
Ministers on a number of occasions, and in the context of Sir
David Clementi's review of regulation of legal services. We hope
that the Government will decide to introduce regulation of claims
handlers as part of the process of implementing Sir David Clementi's
recommendations.
Before March 2004, solicitors were not permitted
to pay third parties for the referral of cases. The rule was designed
to ensure that there were no improper influences constraining
the independence of advice given by solicitors to their clients.
However, the rule was subject to significant criticism from the
Office of Fair Trading (and some solicitors' firms) as being anti-competitive,
in that it went further than was necessary to achieve the legitimate
objective of ensuring that solicitors could advise clients entirely
in the client's best interest. Accordingly, the rule was changed
in March 2004.
Under the current rules, solicitors are permitted
to pay claims handlers (or other third parties) for the referral
of cases provided that:
— full information about the charges
is given to the client, both by the introducer and by the solicitor;
— the introducer does not itself attract
business in an unacceptable way (for example through cold calling);
— no constraints are placed on the
solicitor's freedom to advise the client in the client's best
interests.
This new rule is currently under review, as
agreed with the Master of the Rolls at the time of the rule's
introduction.
The Law Society's powers of regulation apply
only to solicitors, and (to a limited extent) to others employed
in solicitors' practices. The Society through its current rules
tries to curb undesirable activities of claims handling companies,
such as cold calling, by prohibiting solicitors from accepting
referrals from those who act in an unacceptable way, but the Society
does not have power directly to regulate the claims handling companies
themselves. There are also limits on the obligations that the
Society can place on solicitors to "police" claims handlers
when accepting referrals as it would be unrealistic—and
would be seen as undermining the liberalisation of the rule which
OFT sought—to make solicitors totally responsible for the
activities of claims handlers.
The Society would be happy to answer any particular
questions the Committee may have about these issues.
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