The guidance on referrals has become increasingly messy, with the latest edict on what to do if a client has a pre-existing referral arrangement.

In the Beresford (miners) disciplinary proceedings (2008), one of the allegations was that the solicitors failed to act in the best interests of their clients by not providing any advice about the contracts their clients (former miners) had entered into with a referral company. Note that there was nothing wrong with those referral agreements and, not surprisingly, the solicitors decided that the existing agreements were binding, and in any event no criticism could be made of them. Despite that, the SDT ‘did not find this acceptable’ and followed its approach in the earlier case of Robinson [2005], where such an approach was referred to as ‘a culpable failure’. The end result of this has been that the SRA has now changed its guidance on Rule 9 to say:

‘If a client is entering into or has already entered into a scheme or arrangement with an introducer which is not in their best interests then you must advise accordingly. Schemes or arrangements which involve the client paying unnecessary or unreasonable fees will not normally be in the client’s best interests.’

Quite what advice solicitors are supposed to give to their clients in this sort of situation where the agreement is unimpeachable (as in Beresford), is unclear. The bottom line, however, is that advice should be given to clients (and confirmed by letter) warning the client that he or she has entered into an agreement that may not have served their best interests. It would, of course, be wrong to advise that the terms of such an agreement should be broken (theoretically, the solicitor could then be liable for inducing a breach of contract). As a note in the SJ points out, guidance note 1 to Rule 9 indicates that a solicitor should not enter into arrangements with claims management companies which are not in the best interests of clients. Note 1 implies that solicitors should seek to persuade those companies to change their business modules, or cease doing business with them.

At the end of the day, the referral system is in a mess. The basic problem was that the Law Society may have voted for the removal of the ban on referral fees, but the SRA was never convinced (and thus the liberalisation of the market was not accompanied by the necessary adjustment of the professional rules that would enable referrals to be managed properly). Be that as it may, all solicitors receiving paid for, or free of charge, referrals should urgently review their arrangements in the light of this new guidance. See excellent article by Tony Guise in [2009] SJ 1 December 19 (also [2009] LSG 19 November 11, 26 November 9).