Oiling the Wheels – solicitors and the offering of inducements
The Criminal Justice and Courts Act 2015 (CJCA) came into effect on 13 April and included, amongst many other provisions, a ban on inducements being offered in relation to personal injury work.
Inducements are something which a number of firms have offered – possibly without necessarily realising that there is a regulatory implication to them doing so. Those inducements have ranged from offers of cash through to consumer items such as IPads and shopping vouchers.
So what is the position with regard to inducements and how do the CJCA provisions affect this?
What are inducements?
The standard definition of an inducement is “an advantage, benefit or consideration that causes a party to enter into a binding contract”. Clearly that is very close to the definition of a bribe, which the Bribery Act 2010 defines as giving someone a financial or other advantage to encourage that person to perform their functions or activities improperly or to reward that person for having already done so.
For this reason, if for no other, it is vital that firms tread a fine line between inducement and bribery.
The recently issued guidance from the SRA provides some guidance on the distinction between inducements and bribery:
“In very general terms, bribery is giving someone a financial or other advantage to encourage that person to perform their functions or activities improperly or reward that person for already having done so. Inducements are intended to persuade a client to instruct or remain with a firm. In themselves, the two are distinct, however, by way of example, it may be possible to commit an offence of bribery if a client is persuaded to perform functions or activities, for which they are responsible, improperly in return for ‘free services’.
For an inducement to be considered as a bribe, it has to be performed in breach of a relevant expectation as defined in the Act.”
Increasingly, inducements have been used by solicitors in consumer related situations, particularly those potentially lucrative, but competitive, areas such as personal injury work. The CJCA ban hits specifically at the area of personal injury work – although does not attempt to affect other areas. Thus solicitors seeking to offer inducements in other areas may, subject to the law and regulatory provisions, continue to do so.
Quite how widespread the practice of offering inducements has been is somewhat uncertain. Since the banning of inducements by claims management companies in 2012 there has been a reduction in the number of instances involving inducements for personal injury cases. Moreover, an article in The Solicitors Journal in October 2014 entitled “How useful were PI claim inducements?” (http://www.solicitorsjournal.com/personal-injury/claims-management/how-useful-were-pi-claim-inducements) put forward the view that most clients would probably select a solicitor to act for them on the strength of the their reputation rather than because of what they would receive from doing so. The article went to say that only “claimants who suffered pressing financial concerns were most likely to make use of the inducement. For these claimants the money allowed them the security and peace of mind to pursue their claim to the full.”
It is possible, therefore, that there may not be a widespread use of inducements by law firms – and that this month’s ban may have little or no effect upon the prevalence of them.
Concerns about Inducements
When the Solicitors Regulation Authority (SRA) first issued its guidance on inducements, the stance taken by them was seen at the time as being controversial.
The Association of Personal Injury Lawyers, commented that the fact that “a higher standard is already imposed on claims management companies but not on solicitors is simply unacceptable” whilst the Motor Accident Solicitors Society said that “offering cash upfront or a free gift like an iPad to attract claimants will not help in the battle against fraud”, and would only fuel the unacceptable ‘have-a-go’ culture which would not be in the interests of consumers.
The government and the SRA also took very different views on incentives, and in 2010, Lord Young reported that “Britain’s ‘compensation culture’ is fuelled by … constant adverts in the media offering people non-refundable inducements”. However, in the SRA’s press release of 26 June 2013, it concluded that there was not a significant problem.
Lord Young’s 2010 report recommended that the MoJ and the SRA ban inducements and he invited both to change their rules. He concluded that inducements increased the growth of a compensation culture, induced suspect claims, damaged the reputation of the legal profession, and unfairly impacted on SMEs on account of the additional costs caused by trading in fear of litigation and in lacking the resources to defend claims.
Consequently, on 1 April 2013, the MoJ amended the Conduct of Authorised Persons Rules 2013, to introduce a new Rule 6b, ‘In soliciting business through advertising, marketing and other means a business must not offer any cash payment or a similar benefit as an inducement for making a claim.’
In response to this, the SRA produced a guidance note in June 2013 making reference to Lord Young’s report and the MoJ ban, but concluding that a ban would not be implemented on account of a lack of evidence that it was a significant problem, or that clients’ interests were at risk. The SRA also concluded that there was no evidence to suggest that inducements encouraged spurious claims to be made. Possibly a view borne out by the evidence in the Solicitors Journal article referred to earlier. However, the SRA did accept that there could be instances where inducements were professional misconduct but that these needed to be decided on a case by case basis. We will look at this shortly.
The CJCA Ban
So what are the precise terms of the CJCA ban?
The provisions are to be found in sections 58 to 61 of the CJCA.
Section 58 provides:
Rules against inducements to make personal injury claims(1) A regulated person is in breach of this section if—(a) the regulated person offers another person a benefit or is treated as doing so under subsection (4),
(b)the offer of the benefit is an inducement to make a claim in civil proceedings for—(i) damages for personal injury or death, or
(ii) damages arising out of circumstances involving personal injury or death, and(c) the benefit is not related to the provision of legal services in connection with the claim.(2) An offer of a benefit to another person is an inducement to make a claim if the offer of the benefit—(a) is intended to encourage the person to make a claim or to seek advice from a regulated person with a view to making a claim, or
(b) is likely to have the effect of encouraging the person to do so.(3) An offer of a benefit may be an inducement to make a claim regardless of—(a) when or by what means the offer is made,
(b) whether the receipt of the benefit pursuant to the offer is subject to conditions,
(c) when the benefit may be received pursuant to the offer, or
(d) whether the benefit may be received by the person to whom the offer is made or by a third party.(4) If a person other than a regulated person offers a benefit in accordance with arrangements made by or on behalf of a regulated person—(a) the regulated person is to be treated as offering the benefit, and
(b)the offer of the benefit is to be treated as satisfying subsection (2)(a) if the arrangements were intended to encourage people to make claims or seek advice from a regulated person with a view to making a claim.(5) The Lord Chancellor may by regulations make provision as to the circumstances in which a benefit is related to the provision of legal services in connection with a claim, including provision about benefits relating to—(a) fees to be charged in respect of the legal services,
(b) expenses which are or would be necessarily incurred in connection with the claim, or
(c) insurance to cover legal costs and expenses in connection with the claim.
In other words a breach will occur if:
- a regulated person (defined in section 60 as including a solicitor, barrister, legal executive, ABS or such other person as shall be included in the future)
- offers another person – which includes a third party,
- a benefit as an inducement to make a personal injury claim.
Section 60 goes on define Benefit as “any benefit, whether or not in money or other property and whether temporary or permanent” as well as “any opportunity to obtain a benefit”.
The claims covered are to include:
- damages for personal injury or death, or
- damages arising out of circumstances involving personal injury or death,
with “personal injury” being defined so as to include “any disease and any other impairment of a person’s physical or mental condition.”
However, the CJCA does not of itself impose sanctions. Instead, it requires the relevant regulator to “ensure that it has appropriate arrangements for monitoring and enforcing the restriction imposed on regulated persons” and to make rules for these purposes – those rules giving the relevant regulator the power to “exercise any powers that the regulator would have in relation to anything done by the regulated person in breach of another restriction”. In other words leaving the appropriate sanction up to the regulator.
In the light of this provision, the SRA has issued a revised guidance note entitled “Offering inducements to potential clients or clients“ in which it states:
SRA-authorised firms found to be acting in breach of the ban would find themselves in breach of the SRA Principles 2011 specifically, Principles 1, 2, 4, 6 and 7.
The primary focus of any action we take is consumer protection and support for the rule of law. A breach of the ban on inducements would be likely to undermine public confidence in the delivery of legal services. It is also likely that offering inducements will evidence a failure to uphold the rule of law and the proper administration of justice.
You must make sure your publicity is accurate and not misleading, including not offering or suggesting or implying that you are offering any inducement in breach of the ban. Doing so is likely to undermine the trust the public places in you.
As well as complying with the law, you should ensure that you behave in a manner that in your clients best interest, does not call into question or undermine your integrity and that you comply with your regulatory obligations.
The principles referred to are:
2 – act with integrity;
4 – act in the best interests of each client;
6 – behave in a way that maintains the trust the public places in you and in the provision of legal services;
7 – comply with your legal and regulatory obligations and deal with your regulators and ombudsmen in an open, timely and co-operative manner;
Quite how the SRA will enforce the ban remains to be seen.
So far as inducements to the public are concerned, the fact that many inducements of this nature need to be made openly in order for them to entice anyone to be influenced by them in itself means that most breaches will be fairly obvious. Thus, provided that the relevant intelligence reaches the SRA then they should not have too much difficulty enforcing it. More problematic will be inducements to third parties where the inducement is to divert or place pressure on potential clients to instruct a particular firm. Here the inducement will not be made publicly and it will be necessary for the SRA, again based no doubt on intelligence from third parties, to draw an inference that inducements are being offered from the way that firms are acquiring work.
Fortunately for the SRA there is rarely a shortage of firms willing to report other firms for perceived wrong doing, with other intelligence no doubt coming from other regulators, dissatisfied clients, third parties and the ever vigilant internet.
Currently the SRA’s response has been simply to alert the profession to the provisions – in reality never a particularly effective method of regulation. However, the CJCA specifically gives regulators the power to make rules to assist in enforcing these provisions. It is likely, therefore, that at some point in the future the SRA Handbook will be updated accordingly.
Those solicitors offering inducements in contravention of the CJCA provisions could ultimately find themselves facing disciplinary proceedings before the Solicitors Disciplinary Tribunal who have the power to strike a solicitor off the roll, suspend the solicitor from practice or impose a fine. Whether referral to the SDT would be a decision of first recourse by the SRA or whether they would take other less drastic steps first remains to be seen.
Inducements in non-personal injury matters
In instances not involving personal injury work, the position as to inducements continues to be as before, namely that solicitors may offer them provided that in doing so they do not breach any of the provisions contained within the SRA Handbook.
The Guidance Note sets out a two-stage test for solicitors to apply, and states:
When deciding whether it is appropriate for you to offer an inducement, you may wish to consider the following factors.
- Does the offering of an inducement influence the decision to instruct as opposed to making a decision which is based on expertise and the quality of services offered?
- Is the offering of an inducement aimed at vulnerable consumers?
- Does the offering of an inducement result in your firm taking on improper or spurious claims? If so, does that lead to increased costs to businesses, consumers and indemnifiers to cover the expense of defending claims?
If you do decide to offer inducements to clients or potential clients, you should take steps to ensure that
- they are not taken advantage of and do not suffer detriment,
- they do not instruct your firm as a result of misleading information or publicity,
- they have sufficient information to make informed decisions about instructing you,
- they receive independent advice and a proper standard of service,
- their interests do not conflict with your or your firm’s interests,
- their fiduciary relationship with you is not adversely affected.
You will need to exercise your judgement in deciding how you achieve the right outcomes for your clients, bearing in mind the Principles and Outcomes set out in the SRA Handbook.
The guidance note then goes on to consider how this applies in relation to the Principles and particular aspects of the regulations.
Thus, it refers firms to the Principles and in particular those which require that a solicitor:
- act with integrity (Principle 2)
- not allow their independence to be compromised (Principle 3)
- act in the best interests of the client (Principle 4), and
- behave in such a way as to maintain the trust the public places in them and the provision of legal services (Principle 6).
It then goes on to highlight those Outcomes which specifically apply to this area, namely those contained in:
- Chapter 1 – Client Care
- Chapter 3 – Conflict of Interests
- Chapter 8 – Publicity.
Arguably there should be added to the list Chapter 4 – Confidentiality and Disclosure, Chapter 7: Management of your Business and Chapter 9: Fee sharing and referrals.
Whilst the provisions of the CJCA do limit the ability of firms to offer inducements in cases involving personal injury, it nevertheless remains possible for firms to continue to offer inducements provided that in doing so they continue to act in accordance with SRA Principles and Code of Conduct.
Firms may feel that, on balance, it is better to be safe than sorry and avoid the whole area of inducements altogether.
It cannot be denied that the very nature of inducements has the potential for making solicitors appear to be, as Lord Young out it, fuelling the “have-a-go” culture and to be encouraging those who would not otherwise have had recourse to the courts to do so. Many lawyers are concerned for the reputation of their professions, seeing such inducements as grubby and ill-befitting their role in society.
On the other hand, those offering inducements might argue that fraudulent claims are not encouraged as the inducement is only paid on acceptance of the claim, which usually means following consideration of medical evidence supporting the claim. Notwithstanding that safeguard, practitioners need to be alert to the possibility of such bogus claims.
However one views it, inducements will continue to be set by both controversy and risk and it may not be long before the SRA takes a more definite stance on their lack of acceptability.