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Claims management companies will be prevented from offering clients cash incentives to bring damages claims if a Ministry of Justice (MoJ) proposal to tighten up the rules comes into effect.

The move has been prompted by concerns about the way such companies market their services to the public. In his October 2010 report Common Sense – Common Safety, Lord Young of Graffham said that the growth of claims managements companies "has had a dramatic impact on the way we perceive the nature of compensation".

"Britain’s 'compensation culture' is fuelled by media stories about individuals receiving large compensation payouts for personal injury claims and by constant adverts in the media offering people non-refundable inducements and the promise of a handsome settlement if they claim," the report states.

"It places an unnecessary strain on businesses of all sizes, who fear litigation and are subjected to increasingly expensive insurance premiums," it said.

Conduct rules governing authorised claims management companies state that, when advertising their services, they must not "offer an immediate cash payment or a similar benefit as an inducement for making a claim". But this does not prevent them offering to pay something at a later stage.

As a result, promises such as "We'll pay you £200 immediately after our solicitors approve your claim," or "If the solicitor believes they can win the case for you and accepts it, we will award you £300 as an up-front payment" are allowable under the current rules.

In some cases, the inducement takes a different form, such a shopping voucher or entry into a prize draw if the claim is taken on by a solicitor.

The Ministry of Justice (MoJ) estimates that about 5 per cent of authorised claims management companies offer such incentives. In a consultation paper published on 23rd December, it proposes to tighten up the Conduct of Authorised Persons Rules to prevent "any cash payments or similar benefits" being offered - at any stage - as an inducement to make a claim.

"The overall benefits would be a reduction in the perceived compensation culture within England and Wales in addition to strengthening the regulatory regime ensuring that it achieves, more directly, its intended overall purpose," the consultation paper states.

"Additionally, as businesses may need to adapt their marketing accordingly this would go some to way to improve the overall quality and content of advertising and marketing in the industry".

The consultation closes on 10 February. The MoJ plans to implement the amended rule in April 2011. It says subsequent changes to regulations on advertising and conduct of claims may result from its further review of the conduct rules.

The MoJ is also currently consulting on implementing key proposals for the reform of civil litigation funding made by Lord Justice Jackson in his January 2010 report – recommendations which were supported by Lord Young in Common Sense – Common Safety.

The proposals include radical changes to conditional fee arrangements so that a successful claimant would not be able to recover his lawyer's success fee or the ATE insurance premium from the defendant, thus giving claimants a financial stake in keeping legal costs down.

Copyright © 2010, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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