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Referral Fee Ban and Legal Cost Reforms Due in April 2013

Tuesday, 18 December 2012

The implementation of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) in April will have a profound effect on access to justice. The Act which was passed in May 2012 and implemented on 3 December 2012 will bring an end to referral fees and contains cost reforms that will change the way many civil claims are funded.

Potential claimants should be aware of the changes, particularly if they may be eligible for Legal Aid or are considering the use of a Conditional Fee Agreement (CFA) to fund a claim.

Referral Fee Ban

The referral fee ban is set out in sections 56 to 61 of LASPO and is expected to have a significant effect on the claims management industry and the personal injury claims that are handled by it. Currently legal practitioners such as solicitors can pay claims management companies to have cases referred to them. The claims management industry seeks to assist potential claimants in the initial stages of a claim.

The ban will affect regulated persons carrying out prescribed legal business. This means solicitors, barristers, claims management companies and persons authorised by the Financial Services Authority will be banned from paying or receiving referral fees for work related to personal injury or death.

Cost Reforms – Conditional Fee Agreements and Legal Aid

A ‘no win no fee’ claim currently works by virtue of a conditional fee agreement made with a solicitor or their firm and an after the event (ATE) insurance policy to cover disbursements and costs if the case is lost. The benefit to potential claimants is that they can pursue their claim without paying their lawyer or the insurance premium. If they win the lawyer receives a success fee and the insurers receive a larger premium; both are typically paid by the defendant.

Under the reforms this will generally no longer be the case. Successful claimants will have to pay their own legal fees which may be up to 25% of their damages and their own ATE insurance premium.

Legal aid will also be affected by the reforms. Currently, anyone who has a claim with a reasonable chance of success and who is below a certain level of wealth can apply for legal aid in wide a variety of claims. However, when the reforms take effect in April, cases in areas of law such as family and social welfare will no longer qualify for legal aid at all.

Take Action Now

With these changes imminent, it is vitally important that personal injury claimants or claimants relying on legal aid take action as soon as possible to minimise the potential cost implications and complexity that might be experienced after April. If you would like to discuss a potential or current claim, we have experienced lawyers who can help you. Please contact Sarah Vincent by email or by telephone 020 7611 4848.

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