Solicitors' Code of Conduct 2007

Rule 9: Referrals of business

 

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The guidance to rule 9 of the Code of Conduct was amended on 13 November 2009 to answer a number of queries on referrals of business.View guidance to rule 9 with 13 November 2009 changes highlighted

Rule 9 of the Code of Conduct was amended on 31 March 2009 as part of a general updating of the rules to introduce firm-based regulation and legal disciplinary practices as provided for in the Legal Services Act 2007. View rule 9 with 31 March 2009 changes highlighted

Introduction

Rule 9 applies when you receive referrals of business from, or make referrals to, third parties. Its purpose is to protect your independence. Additional provisions apply when you have a financial arrangement with an introducer. In relation to European cross-border practice the restrictions on financial arrangements with introducers are more stringent and you will need to refer to rule 16. The rule does not apply to your overseas practice but you must comply with 15.09.

Rule

9.01 General

  • (1)

    When making or receiving referrals of clients to or from third parties you must do nothing which would compromise your independence or your ability to act and advise in the best interests of your clients.

  • (2)

    You must draw the attention of potential introducers to this rule and to the relevant provisions of rule 7 (Publicity).

  • (3)

    This rule does not apply to referrals between lawyers (including businesses carrying on the practice of lawyers).

  • (4)

    You must not, in respect of any claim arising as a result of death or personal injury, either:

    • (a)

      enter into an arrangement for the referral of clients with; or

    • (b)

      act in association with,

    any person whose business, or any part of whose business, is to make, support or prosecute (whether by action or otherwise, and whether by a solicitor or agent or otherwise) claims arising as a result of death or personal injury, and who, in the course of such business, solicits or receives contingency fees in respect of such claims.

  • (5)

    The prohibition in 9.01(4) shall not apply to an arrangement or association with a person who solicits or receives contingency fees only in respect of proceedings in a country outside England and Wales, to the extent that a local lawyer would be permitted to receive a contingency fee in respect of such proceedings.

  • (6)

    In 9.01(4) and (5) "contingency fee" means any sum (whether fixed, or calculated either as a percentage of the proceeds or otherwise howsoever) payable only in the event of success in the prosecution or defence of any action, suit or other contentious proceedings.

9.02 Financial arrangements with introducers

The following additional requirements apply when you enter into a financial arrangement with an introducer:

    • (a)

      The agreement must be in writing and be available for inspection by the Solicitors Regulation Authority.

    • (b)

      The introducer must undertake, as part of the agreement, to comply with the provisions of this rule.

    • (c)

      You must be satisfied that clients referred by the introducer have not been acquired as a result of marketing or publicity or other activities which, if done by a person regulated by the Solicitors Regulation Authority, would be in breach of any of these rules.

    • (d)

      The agreement must not include any provision which would:

      • (i)

        compromise, infringe or impair any of the duties set out in these rules; or

      • (ii)

        allow the introducer to influence or constrain your professional judgement in relation to the advice given to the client.

    • (e)

      The agreement must provide that before making a referral the introducer must give the client all relevant information concerning the referral, in particular:

      • (i)

        the fact that the introducer has a financial arrangement with you; and

      • (ii)

        the amount of any payment to the introducer which is calculated by reference to that referral; or

      • (iii)

        where the introducer is paying you to provide services to the introducer's customers:

        • (A)

          the amount the introducer is paying you to provide those services; and

        • (B)

          the amount the client is required to pay the introducer.

    • (f)

      If you have reason to believe that the introducer is breaching any of the terms of the agreement required by this rule, you must take all reasonable steps to ensure that the breach is remedied. If the introducer continues to breach it you must terminate the agreement.

    • (g)

      Before accepting instructions to act for a client referred under 9.02 you must, in addition to the requirements contained in 2.02 (Client care), 2.03 (Information about the cost) or 2.05 (Complaints handling), give the client, in writing, all relevant information concerning the referral, in particular:

      • (i)

        the fact that you have a financial arrangement with the introducer;

      • (ii)

        the amount of any payment to the introducer which is calculated by reference to that referral; or

      • (iii)

        where the introducer is paying you to provide services to the introducer's customers:

        • (A)

          the amount the introducer is paying you to provide those services; and

        • (B)

          the amount the client is required to pay the introducer;

      • (iv)

        a statement that any advice you give will be independent and that the client is free to raise questions on all aspects of the transaction; and

      • (v)

        confirmation that information disclosed to you by the client will not be disclosed to the introducer unless the client consents; but that where you are also acting for the introducer in the same matter and a conflict of interests arises, you might be obliged to cease acting.

    • (h)

      You must not enter into a financial arrangement with an introducer for the referral of clients in respect of criminal proceedings or any matter in which you will act for the client with the benefit of public funding.

    • (i)

      For the purpose of this rule:

      • (i)

        "financial arrangement" includes:

        • (A)

          any payment to a third party in respect of referrals; and

        • (B)

          any agreement to be paid by a third party introducer to provide services to the third party's customers; and

      • (ii)

        "payment" includes any other consideration but does not include normal hospitality, proper disbursements or normal business expenses.

9.03 Referrals to third parties

  • (1)

    If you recommend that a client use a particular firm, agency or business, you must do so in good faith, judging what is in the client's best interests.

  • (2)

    You must not enter into any agreement or association which would restrict your freedom to recommend any particular firm, agency or business.

  • (3)

    Paragraph (2) above does not apply to arrangements in connection with any of the following types of contracts:

    • (a)

      regulated mortgage contracts;

    • (b)

      general insurance contracts; or

    • (c)

      pure protection contracts.

  • (4)

    The terms "regulated mortgage contracts", "general insurance contracts" and "pure protection contracts" in (3) above have the meanings given in 19.01(4).

  • (5)

    Where you refer a client to a firm, agency or business that can only offer products from one source, you must notify the client in writing of this limitation.

  • (6)

    If a client is likely to need an endowment policy, or similar life insurance with an investment element, you must refer them only to an independent intermediary authorised to give investment advice.

Guidance to rule 9 - Referrals of business

General

  • 1.

    You should not enter into a referral arrangement with an introducer whose overall scheme or arrangement will not be in the best interests of the clients referred to you.

  • 2.

    You must ensure that your arrangement with an introducer (including your wish to avoid offending the introducer and your interest in continuing to receive work) does not compromise your duties to act in the best interests of your client, to be independent and to provide a good standard of service (rule 1). You will therefore need to consider carefully any proposed referral arrangement (even if no financial arrangement is in place) before accepting work from an introducer. It is also recommended that your firm conducts regular reviews of your referral arrangements to ensure that they remain compliant.

  • 3.

    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 the client accordingly. Schemes or arrangements which involve the client paying unnecessary or unreasonable fees will not normally be in the client's best interests.

  • 4.

    In addition to the core duties (rule 1), whenever you review a proposed or existing referral arrangement you should also consider:

    • (a)

      whether the arrangement enables you to comply with the provisions of rule 9;

    • (b)

      whether the arrangement involves confidential client information being disclosed to an introducer (see rule 4.01) and what authority you should seek from your client;

    • (c)

      whether your introducer's publicity is appropriate – see guidance note 14 below;

    • (d)

      whether your advice to the client includes the relevant information regarding the arrangements with an introducer in respect of any limitations placed upon you (see rule 2.02(2)(e)) and if the outcome sought justifies the costs involved (see rule 2.03(6));

    • (e)

      whether you retain control of the work you do for clients. No arrangement with an introducer should affect your duty to communicate directly with the client to obtain or confirm instructions, in the process of providing advice and at all appropriate stages of the transaction.

  • 5.

    If you own an interest in, or provide services through a separate business which is an introducer, you must ensure that you comply with rule 21 (Separate businesses).

Financial arrangements with introducers

  • 6.

    Rule 9 permits you to pay for referrals, and to be paid by an introducer to provide services to the introducer's customers, subject to conditions. These conditions apply whenever you make a payment, or give other consideration, to a third party who refers clients to you, unless you can show that the payment is wholly unconnected with the referral of any client to you. The conditions also apply regardless of how the payment (or other consideration) is described. For example, the conditions would apply to the payment of administrative or marketing fees, payments described as "disbursements" which are not proper disbursements, and panel membership fees. Placing an advert in a publication operated by a third party and receiving business direct (so not via any third party) as a result would not constitute a financial arrangement with an introducer. However, paying a fee to a third party to recommend your firm would constitute a financial arrangement with an introducer.

  • 7.

    You will not be able to avoid the requirements of the rule by, for example, making the payment to an intermediary who, in turn, has an arrangement with the introducer. When investigating complaints the SRA will consider the substance of any relationship rather than the mere form.

  • 8.

    "Other consideration" might include, for example, the provision of services and secondment of staff to the introducer, or an agreement to purchase services or products from the introducer (where such a purchase is a condition of referrals being made). The payment or consideration does not have to be specifically identified as relating to the referrals of business—it could include a much broader relationship if the referrals take place as a result of that relationship.

Disclosure – by you

  • 9.

    Where a payment is made to an introducer in relation to each client referred by the introducer, either as a fixed amount or as a proportion of the fee charged to the client, the amount of the payment must be disclosed to each client. Where a payment to an introducer is more general in nature (for example, it may be a fixed, annual or monthly fee), clients referred by the introducer should be informed that you are making a payment and of the nature of the financial arrangement (or other consideration given). If the client asks for more information about the overall amount of payments made, you should supply the client with the best information that you reasonably can. In any case where it is reasonably possible for you to calculate how much of the payment to an introducer relates to a particular client, you must disclose the amount.

  • 10.

    Where you are being paid by an introducer to provide services to the introducer's customers, both you and the introducer are required to disclose both the amount the introducer is paying you to provide services to the client and the amount the introducer is charging the client for your services. This will enable the client to ascertain whether, and if so how much, the introducer is charging for making the referral and to make an informed decision whether to accept the referral on that basis.

  • 11.

    In addition to disclosing information about fees paid in respect of referrals and the other specific disclosures listed in 9.02(g), you must disclose any other "relevant information" concerning the referral. This would include a summary of your overall relationship with an introducer if this involves consideration other than the payment of specific fees. For example, if you provide legal services to an introducer free of charge on the understanding that the introducer refers clients to you, then the client should be informed of this relationship.

  • 12.

    The requirement that you should make disclosure before accepting instructions will normally mean that you should write to the client as soon as you are asked to act for the client, rather than waiting until the first interview with the client. If time does not permit this, disclosure should be made at the beginning of the interview and confirmed in writing.

Disclosure - by the introducer

  • 13.

    Rule 9.02(e) requires the introducer to provide the client with all information concerning the referral. It will therefore be necessary for you to agree the nature of this information with the introducer. See note 9 above on disclosure of payments. It is recommended that you check any standard letters or scripts which an introducer uses when providing this information and that you ask referred clients on a regular basis what information the introducer has provided about the referral arrangement. It is recommended that you keep written records of checks made with clients for evidential purposes.

Publicity

  • 14.

    Rule 9.02(c) requires you to be satisfied that the introducer has not acquired the client as a consequence of marketing, publicity or other activities which, if done by a person regulated by the SRA, would have been in breach of these rules (particularly rule 7 (Publicity)). Three requirements of rule 7 are particularly important for you to bear in mind in the context of payments for referrals:

    • (a)

      the general ban on misleading or inaccurate publicity;

    • (b)

      the prohibition of unsolicited approaches in person or by telephone to a "member of the public" (see 7.03); and

    • (c)

      the requirement that you must not authorise a third party to publicise your firm in a way which would be contrary to rule 7.

Duty to monitor/terminate referral agreements

  • 15.

    Whilst rule 9.02(c) does not place a specific obligation upon you to investigate your introducer's marketing methods and material at the outset and periodically thereafter, it is likely that this will be necessary in practice in order to ensure that you comply with the rule. If the client was referred to your introducer by another third party, then you should also consider the publicity of that third party wherever practicable.

  • 16.

    If you become aware of possible breaches of rule 9 or rule 7 (Publicity), you must bring these to the attention of introducers, and if necessary must terminate a referral agreement.

Improper constraints and referrals to third parties

  • 17.

    Rule 9.02(d)(ii) aims to prevent the introducer from influencing or constraining your professional judgement in respect of advice given to clients. Any referral by you to a third party will be subject to rule 1 (Core duties) and 9.01, as well as 9.03. In order to ensure that you can act in accordance with the core duties you must not enter into an arrangement which limits or restricts your ability to give advice to your clients. This would include an agreement with an introducer which requires you to refrain from issuing court proceedings or to only act in future matters for a referred client with the original introducer's consent or to refer a client to a particular expert, search provider or advocate.

  • 18.

    However, you would not be prevented from acting on your client's instructions to conduct their matter in accordance with the terms and conditions of a "before the event" insurance policy.

  • 19.

    You would also not be prevented from making use of an introducer's preferred supplier of certain services but you should not enter into a binding agreement to use that supplier. In every case the use of that supplier must also be in the best interests of the client (see rule 9.03).

  • 20.

    Any agreement you enter into in respect of regulated mortgage contracts, general insurance contracts (including after the event insurance contracts) or pure protection contracts should provide that referrals will only be made where this is in the best interests of the particular client and the contract is suitable for the needs of that client.

Excepted work

  • 21.

    Rule 9.02(h) prohibits you having a financial arrangement with an introducer in respect of criminal proceedings, or in any matter in which you will act for the client with the benefit of public funding. You would, however, not be prohibited from continuing to act for a referred client if there was a subsequent unanticipated need to obtain public funding or to represent the client in criminal proceedings. In this situation you should retain evidence as to how those circumstances had arisen.

"Normal hospitality"

  • 22.

    What amounts to "normal hospitality" (see 9.02(i)(ii)) will depend on the circumstances in every case. For example, corporate entertainment, dinners or lunches are acceptable and would not amount to payment for a referral, provided these are proportionate to the relationship with a business contact/introducer.

"Normal business expenses"

  • 23.

    "Normal business expenses" (see 9.02(i)(ii)) are payments for services provided to your firm which are totally unrelated to the referral of any client. So, for example, you would not be prevented from accepting referrals from the company with which you place your firm's indemnity or buildings insurance, or from the accountant who prepares your annual report or tax return.

  • 24.

    Rule 19 (Financial services) deals with referrals in relation to financial services.

  • 25.

    Rule 2.06 (Commissions) applies in relation to commission received for the introduction of clients.

European cross-border practice


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