It is an extremely tricky area. Practice Rule 10 sets out relatively clear guidance on how do deal with ‘commissions’. What Practice Rule 10 says is that you must account to your client for any ‘commission’ unless you have (i) disclosed to the client in writing the amount of the commission and (ii) obtained the client’s permission to retain that commission. In effect, Practice Rule 10 deals with true commissions – when the payment does not reduce the actual cost of the commission, and is also not a discount or a rebate. The problems arise with more widely defined commissions, which do reduce the cost of the disbursement, or which operate as discounts and rebates. For instance, in Adcock [2006] solicitors had received £20 from a local search company each time they paid a specified sum in search fees; that amounted to more than £20,000 over four years, but none of the payments were disclosed to clients. The court ruled that the payments were a discount on fees, and not ‘commissions’ (although described as such). That being so, Practice Rule 10 did not apply. The new guidance is a response to that decision and is intended to fill the gap by saying that if the ‘commission’ does not come within Practice Rule 10 then it cannot be retained and must be passed on to the client. For instance, if an agency charges a fee of £100 for a search, and then pays £20 ‘commission’ for each search, then the solicitor can only charge the client a fee of £80. Likewise, if an agency offers a ‘commission’ which increases with the number of searches obtained, with the true cost of those disbursements for each search being calculated at a later date, then a rebate must be paid to the client once the apportioned sum is known. Those two examples come from the new SRA Guidance, but it is a fundamental criticism of the Guidance that it does not go further and give other examples of what is (and what is not) allowed.

In practice there will be many instances where it is difficult to decide whether a ‘commission’ comes within Practice Rule 10 or not. If it does, then it can be retained (provided the two requirements set out above are met). Annex 14G of the Professional Conduct Guide says that ‘commission’ for Practice Rule 10 would include commissions on life policies, stocks and shares, pensions and general insurances such as household contents and fire policies, as well as commissions on opening a building society account, and commissions paid for introducing a client to a third party in connection with the client matter. Thus, we assume that those commissions can be dealt with solely under Practice Rule 10. But, the sort of problems that arose in Adcock [2006] did not exist when that guidance was originally drafted (or even when it was revised in 1999) and there must be a danger that some of those ‘commissions’ could in fact still be treated as discounts (and so be outside Practice Rule 10 but within the scope of the new guidance from the SRA). It is all very unsatisfactory for the practitioner. All we can suggest is that if you are unclear as to whether Practice Rule 10 applies to a particular payment or commission, then you should write to the SRA to ask for an opinion. For an introductory, simplified, note see [2007] LSG 15 February 29, and refer to the SRA guidance at the website link in that article. © Practical Lawyer