Offering inducements to potential clients or clients
Issued on 25 June 2013 (updated on 13 April 2015)
This note reminds regulated individuals and authorised bodies of their professional duties when considering offering an inducement (financial or otherwise) to a client or potential client. This note does not form part of the SRA Handbook and is not mandatory, but the SRA may have regard to it when exercising its regulatory functions.
Criminal Justice and Courts Act 2015 (CJCA) - ban on inducements in respect of personal injury claims
With effect from 13 April 2015, the CJCA introduces a ban on the offer of a benefit made by SRA-authorised firms and individuals (as defined in section 60 of the Act) to a potential claimant where the benefit offered is an inducement in respect of a personal injury claim and is not related to the provision of legal services in connection with the claim.
Section 58(2) of the CJCA provides that the offer of a benefit is an inducement if that benefit is:
- intended to encourage; or,
- is likely to have the effect of encouraging,
a person either to make a personal injury claim or to seek advice from a legal service provider with a view to making such a claim. In addition, Section 58(4) provides for offers of benefits routed via a third party to be treated as having been offered by SRA-authorised persons.
'Benefit' in the CJCA has been defined as any benefit, whether or not in money or other property and whether temporary or permanent, and any opportunity to obtain a benefit (for example, the offer to be entered in a draw for a prize).
The ban will apply no matter how the offer is made, whether it is conditional, when it is to be made, and even when the benefit is to be received by a third party (Section 58(3)).
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 Ministry of Justice's Claims Management Regulator in September 2012 confirmed the implementation of a complete ban on the offering of inducements by Claims Management Companies which came into effect in April 2013.
Inducements in cases other than personal injury matters
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.
As with any regulatory issue, your starting point will be the principles set out in the SRA Handbook.
The most relevant principles in this situation are that you must
- act with integrity,
- not allow your independence to be compromised,
- act in the best interests of each client,
- behave in a way that maintains the trust the public places in you and in the provision of legal services.
You must also achieve the outcomes set out in the relevant chapters of the SRA Code of Conduct 2011.
You must achieve the following outcomes in relation to the information you give to clients and potential clients:
- you treat your clients fairly;
- you provide services to your clients in a manner which protects their interests in their matter and not linked to the sort of incentive which has been offered;
- clients are in a position to make informed decisions about the services they need, how their matter will be handled and the options available to them;
- clients receive the best possible information, both at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of their matter.
Failing to achieve the outcomes may compromise or impair your independence and integrity.
You will need to consider the needs and circumstances of each individual client, for example whether they are particularly vulnerable or whether they may have difficulties understanding the information you give them.
It is important that you are able to show that clients have made an informed decision, having considered the options available and that you have treated them fairly. A decision to instruct should not be based on your offer of an inducement in exchange for clients' instructions.
Conflict of interests
If you offer an inducement to clients or potential clients, you must ensure that your interests do not conflict with those of your client. You can never act where there is a conflict, or a significant risk of conflict, between you and your client.
You must ensure that your systems and controls for identifying own interest conflicts are appropriate to the size and complexity of the firm and the nature of the work undertaken. Firm managers may consider it necessary to have checks in place to ensure they understand how members of their staff are obtaining work.
You need to be satisfied that the terms and conditions on which an inducement is offered does not lead to your interests conflicting with those of your client or potential client.
Factors which could result in there being a conflict of interests include the following.
- Should the retainer end prematurely, the client is asked to return the 'inducement';
- Should the client complain about the service received, the inducement is taken back;
- Where the client fails to pay professional fees, and is pursued by you for the recovery of those fees, the client is required to return the inducement;
unless these factors have been explained to a client who has made an informed decision to instruct you and accept the inducement
Publicity for this work must be consistent with the Principles, and you must achieve the relevant outcomes in Chapter 8, including the following.
- Your publicity is accurate and not misleading, and is not likely to diminish the trust the public places in you and in the provision of legal services.
- You do not make unsolicited approaches in person or by telephone to members of the public in order to publicise your firm.
- Your publicity relating to charges is clearly expressed.
You may not be achieving these outcomes if, for example, you suggest that, by instructing your firm, clients will obtain a more favourable outcome and pressure is placed on clients that would affect their freedom of choice.
Clients or potential clients should be making decisions regarding their choice of solicitor based on skill and expertise which allows them to achieve the best possible outcome.
It is important that you take sufficient steps to ensure that potential clients or clients are fully informed as to the nature of the inducement and the terms on which it is being offered.
Inducements and the Bribery Act 2010
Bribery undermines the rule of law and poses very serious threats to sustained economic progress and to the proper operation of free markets more generally. The Bribery Act 2010 (the Act) is intended to respond to these threats and to the extremely broad range of ways that bribery can be committed.
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.
Further advice on the SRA Principles and the SRA Code of Conduct can be obtained from the Professional Ethics Guidance team.
Please use www.sra.org.uk/inducements to link to this page.