Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2011] CSOH NUMBER 168
CA34/11	OPINION OF LORD MENZIES in the cause ANDREW SMITH QC Pursuer; against THE SCOTTISH LEGAL AID BOARD Defenders: ­­­­­­­­­­­­­­­­­________________

Pursuer: R Smith Q.C., Pugh; Balfour & Manson LLP

Defenders: Mure Q.C., Barne; Scottish Legal Aid Board

14 October 2011

Introduction

[1] The matter in dispute in the present action is the date from which interest may become payable by the defenders in respect of fees of advocates who are instructed on behalf of a litigant who is in receipt of civil legal aid.

[2] The pursuer is a practising advocate. He accepted instructions from a firm of solicitors to represent the interests of a litigant who had been granted civil legal aid in respect of a clinical negligence claim. Following the commencement of proof, instructions were given by the litigant that the action should be abandoned. No award of expenses was made in favour of the litigant, and fees in respect of the pursuer's instruction became payable by the defenders.

[3] Unlike in criminal legal aid cases in which an advocate's note of fee is submitted directly to the defenders, in civil legal aid cases a fee note is submitted by Faculty Services Limited ("FSL") on behalf of the advocate to the instructing solicitor. Each fee note is headed "Fee Notification (Proposed Fee)", and carries a note in the following terms:

"NB. Responsibility to recover fees in legally aided cases lies with the instructing Solicitor. Failure to include said fee(s) in the account to The Scottish Legal Aid Board will result in payment being due by the instructing Solicitor."

[4] In this action the pursuer seeks payment of interest in respect of three notes of fee. Parties were agreed when the matter came before me at debate that this opinion should address issues of legal principle, rather than the specifics of the claim which can be addressed at a later stage in the proceedings (if necessary). It is convenient for present purposes to confine the narrative to the first fee note on which the action is founded, being fee note no. 8. This was dated 25 November 2005, and related to work performed by the pursuer between 3 October and 3 November 2005. The fee note was issued by FSL to the pursuer's instructing solicitors. On 31 January 2006 FSL submitted to the defenders an application for payment on account of fees in accordance with Regulation 11 of the Civil Legal Aid (Scotland) (Fees) Regulations 1989. This stated that the period covered by the claim was from 3 October to 3 November 2005 in respect of the legally aided litigant in question. It gave the pursuer's name and stated that the fees earned during this period, excluding VAT, amounted to £7,500, and that 75% thereof was claimed in accordance with Regulation 11, being £5,625. The form concluded with a claim and certificate in the following terms:

"We claim a payment to account of fees in the amount entered in box A1 or B1 above. We certify that to the best of our knowledge and belief the information given in this claim is correct and we confirm that this claim is in accordance with regulation 11 of the Legal Aid (Scotland) (Fees) Regulations 1989."

This certificate was signed on behalf of FSL.

[5] The Regulation 11 application was received by the defenders on 1 February 2006, and on 3 March 2006 the defenders paid a total of £260 plus VAT in respect of this application for payment on account of fees.

[6] On 22 January 2008 the solicitors who had instructed the pursuer in this litigation submitted to the defenders their account of expenses in respect of the action in question. This was received by the defenders on 23 January 2008. The account synopsis included details of fees claimed by several counsel in respect of work performed in relation to the litigation, including the pursuer's fees. In February 2008 the defenders paid an abated sum in respect of the pursuer's fees, under deduction of the amount already paid in respect of the Regulation 11 application. On 4 February 2011 the defenders paid the balance of the fees claimed by the pursuer.

[7] At the outset of the present proceedings, each party adopted a rather more radical position than that ultimately argued before me at debate. The pursuer initially maintained the position that he was entitled to interest on each fee note from a date thirty days after the date on which the fee note was received by the instructing solicitors. For their part the defenders maintained the position that no interest was due in respect of any fee until such time as they had carried out a full assessment of the fees and work carried out and had satisfied themselves that the fees had been properly incurred or had been taxed by the auditor.

[8] By the time the matter came before me for debate the parties had shifted their positions somewhat. The pursuer's primary position was that interest became payable on the full amount of the fee indicated in the Regulation 11 application (ie, in relation to fee note 8, £7,500) thirty days after the submission of that application. His secondary position was that interest was payable on the sum which was 75% of the fees and which should have been paid in response to the Regulation 11 application (ie, for fee note 8, £5,625), from a date thirty days after the receipt of the Regulation 11 application. His final position was that interest was payable on all counsel's fees on a date thirty days after the submission of the instructing solicitor's account to the defenders. For their part, the defenders accepted the last point, but disputed that any interest was payable for any period before thirty days after the submission of the solicitor's account.

[9] Each senior counsel helpfully provided me with skeleton submissions (nos. 19 and 22 of process) which I have taken into account but which I do not rehearse in full here. In addition, a Joint Minute of Admissions for the parties (no. 23 of process) was lodged for the debate, in which a wide range of evidential matters was the subject of agreement. Not all issues of fact had been capable of agreement between the parties; in particular, the defenders have raised issues about the conduct of the pursuer in the context of an argument for remission of statutory interest in terms of section 5 of the Late Payment of Commercial Debts (Interest) Act 1998. Parties were agreed that I should not address issues of conduct, nor remission of statutory interest, at this stage, but rather that I should confine this opinion to the question of the date from which interest should run. It is to that issue that this opinion is confined. Both parties were agreed that shortly after the issuing of this opinion, the case should be put By Order to enable further procedure to be considered.

The relevant statutory and regulatory framework

[10] Although this is not an exhaustive list, the following provisions were referred to in the course of submissions:

Legal Aid (Scotland) Act 1986 ("the 1986 Act")

"Section 2 - Powers of the Board

(1) Subject to the provisions of this Act, the Board may do anything-

(a) which it considers necessary or expedient for securing the provision of legal aid and of advice and assistance in accordance with this Act; or

(b) which is calculated to facilitate or is incidental to or conducive to the discharge of its functions.

Section 4 - Scottish Legal Aid Fund

(1) The Board shall establish and maintain a fund to be known as the Scottish Legal Aid Fund (in this Act referred to as "the Fund").

(2) There shall be paid out of the Fund-

(a) such sums as are, by virtue of this Act or any regulations made thereunder, due out of the Fund to any solicitor or counsel in respect of fees and outlays properly incurred, in connection with the provision, in accordance with this Act, of legal aid or advice and assistance;

Section 33 - Fees and outlays of solicitors and counsel

(1)  ... any solicitor or counsel who acts for any person by providing legal aid or advice and assistance under this Act shall be paid out of the Fund in accordance with section 4(2)(a) of this Act in respect of any fees or outlays properly incurred by him in so acting."

The Civil Legal Aid (Scotland) (Fees) Regulations 1989 (as amended) ("the 1989 Regulations")

"Fees allowable to counsel

9. Subject to the provisions of regulation 10 regarding calculation of fees, counsel may be allowed such fees as are reasonable for conducting the proceedings in a proper manner, as between solicitor and client, third party paying.

Payments to account

11. (1) A solicitor acting for, or counsel instructed on behalf of, a person receiving civil legal aid may prior to the completion of the proceedings for which the legal aid was granted submit a claim to the Board, in such form and complying with such terms and containing such information as the Board may require for assessment purposes, for payment of sums to account of his fees necessarily and reasonably incurred in connection with these proceedings.

(2) A claim may be made under this Regulation only in relation to any case where-

(a) in the proceedings for which the civil legal aid was granted the number of days on which a diet of proof, debate or like hearing is held exceeds 20 days; or

(b) a period of 2 years has elapsed since the date on which the Board gave notice in writing of the grant of civil legal aid.

(3) A second or subsequent claim may be made under this Regulation-

(a) where the number of days on which a diet of proof, debate or like hearing is held exceeds 20 days in any period subsequent to that covered by the immediately preceding claim; or

(b) where the period mentioned in paragraph (2)(b) has elapsed, after an interval of not less than 12 months has elapsed since the immediately preceding claim was made.

(4) The amount of any payment in respect of a claim under this Regulation shall be 75 per cent of the fees that will become eligible for payment and earned during the period covered by the claim.

(5) The making of a claim under this regulation shall not be regarded as an account of expenses nor shall the claim affect in any way the provisions of regulation 8 above with regard to the submission and acceptance of accounts prepared in respect of fees and outlays allowable to solicitors.

(6) Where payment has been made in accordance with the provisions of this regulation but the payment made exceeds in the case of any solicitor acting for the assisted person the total fees and outlays allowable to that solicitor in respect of the legal aid or in the case of any counsel instructed on behalf of the assisted person the total fees allowable to that counsel in respect of the legal aid, the excess shall be repaid to the Fund by such solicitor or counsel as the case may be."

Directive 2000/35/EC ("the Directive")

The following passages from the recital were referred to in counsels' submissions:-

"Whereas:

(7) Heavy administrative and financial burdens are placed on businesses, particularly small and medium-sized ones, as a result of excessive payment periods and late payment. Moreover, these problems are a major cause of insolvencies threatening the survival of businesses and result in numerous job losses.

(12) The objective of combating late payments in the internal market cannot be sufficiently achieved by the Member States acting individually and can, therefore, be better achieved by the Community. This Directive does not go beyond what is necessary to achieve that objective. This Directive complies therefore, in its entirety, with the requirements of the principles of subsidiarity and proportionality as laid down in Article 5 of the Treaty.

(14) The fact that the liberal professions are covered by this Directive does not mean that Member States have to treat them as undertakings or merchants for purposes not covered by this Directive.

(16) Late payment constitutes a breach of contract which has been made financially attractive to debtors in most Member States by low interest rates on late payments and/or slow procedures for redress. A decisive shift, including compensation of creditors for the costs incurred, is necessary to reverse this trend and to ensure that the consequences of late payments are such as to discourage late payment.

(19) This Directive should prohibit abuse of freedom of contract to the disadvantage of the creditor. Where an agreement mainly serves the purpose of procuring the debtor additional liquidity at the expense of the creditor, or where the main contractor imposes on his suppliers and subcontractors terms of payment which are not justified on the grounds of the terms granted to himself, these may be considered to be factors constituting such an abuse. This Directive does not affect national provisions relating to the way contracts are concluded or regulating the validity of contractual terms which are unfair to the debtor.

(22) This Directive should regulate all commercial transactions irrespective of whether they are carried out between private or public undertakings or between undertakings and public authorities, having regard to the fact that the latter handle a considerable volume of payments to business. It should therefore also regulate all commercial transactions between main contractors and their suppliers and subcontractors."

In addition, reference was made to the following Articles of the Directive:

"Article 1

Scope

This Directive shall apply to all payments made as remuneration for commercial transactions.

Article 2

Definitions

For the purposes of this Directive:

1. 'commercial transactions' means transactions between undertakings or between undertakings and public authorities which lead to the delivery of goods or the provision of services for remuneration,

'undertaking' means any organisation acting in the course of its independent economic or professional activity, even where it is carried on by a single person;

2. 'late payment' means exceeding the contractual or statutory period of payment;

Article 3

Interest in case of late payment

1.                 Member States shall ensure that:

(a) interest in accordance with point (d) shall become payable from the day following the date or the end of the period for payment fixed in the contract;

(b) if the date or period for payment is not fixed in the contract, interest shall become payable automatically without the necessity of a reminder:

(i) 30 days following the date of receipt by the debtor of the invoice or an equivalent request for payment; or

(ii) if the date of the receipt of the invoice or the equivalent request for payment is uncertain, 30 days after the date of receipt of the goods or services ...;"

The Late Payment of Commercial Debts (Interest) Act 1998 ("the 1998 Act")

1. - Statutory interest

(1) It is an implied term in a contract to which this Act applies that any qualifying debt created by the contract carries simple interest subject to and in accordance with this Part.

2.- Contracts to which Act applies

(1) This Act applies to a contract for the supply of goods or services where the purchaser and the supplier are each acting in the course of a business, other than an excepted contract.

2A. Application of the Act to Advocates

The provisions of this Act apply to a transaction in respect of which fees are paid for professional services to a member of the Faculty of Advocates as they apply to a contract for the supply of services for the purpose of this Act.

3.- Qualifying debts

(1) A debt created by virtue of an obligation under a contract to which this Act applies to pay the whole or any part of the contract price is a "qualifying debt" for the purposes of this Act, unless (when created) the whole of the debt is prevented from carrying statutory interest by this section.

4.- Period for which statutory interest runs

(1) Statutory interest runs in relation to a qualifying debt in accordance with this section (unless section 5 applies).

(2) Statutory interest starts to run on the day after the relevant day for the debt, at the rate prevailing under section 6 at the end of the relevant day.

(3) Where a supplier and the purchaser agree a date for payment of the debt (that is, the day on which the debt is to be created by the contract), that is the relevant day unless the debt relates to an obligation to make an advance payment.

A date so agreed may be a fixed one or may depend on the happening of an event or the failure of an event to happen.

(4) Where the debt relates to an obligation to make an advance payment, the relevant day is the day on which the debt is treated by section 11 as having been created.

(5) In any other case, the relevant day is the last day of the period of 30 days beginning with-

(a) the day on which the obligation of the supplier to which the debt relates is performed; or

(b) the day on which the purchaser has notice of the amount of the debt or (where that amount is unascertained) the sum which the supplier claims is the amount of the debt,

whichever is the later.

Submissions for the pursuer

[11] Under reference to sections 32 and 33 of the 1986 Act, senior counsel observed that where legal aid has been made available to a person in connection with (all or only part of) any proceedings counsel are forbidden to take any payment in respect of any advice given or anything done by counsel in connection with such proceedings during any period when legal aid was available, except for such payment as may be made in accordance with that Act. Section 33 provides that counsel shall be paid out of the Fund in respect of any fees properly incurred by him. Section 2 of the 1986 Act provides wide powers to the defenders. Neither the legally aided individual nor the instructing solicitor may lawfully make a direct transfer of monies to counsel in connection with the proceedings; the responsibility for payment of all professional fees properly incurred by counsel in representing the legally aided individual falls on the defenders alone.

[12] Senior counsel drew my attention to the agreed circumstances narrated in paragraph 23 of the Joint Minute, and to paragraphs [4] and [5] of Regulation 11 of the 1989 Regulations. He observed that the pursuer had sought (in respect of Fee Note 8) payment of £5,625 in his Regulation 11 application on 31 January 2006, and that he received only £260 (excluding VAT) on 6 March 2006. He did not receive any further payment until February 2008, when he received £5,040, after deduction of the sum of £260 already paid. He did not receive the balance of this fee note until 4 February 2011.

[13] Senior counsel's primary submission was that the Regulation 11 application was an invoice or equivalent request for payment in the sum of £7,500, for the purpose of paragraph 1(b)(ii) of Article 3 of the Directive. His secondary position was that, if it was not an invoice or equivalent request for payment of £7,500, it was such an invoice or request for payment of £5,625. When they received this application on 1 February 2006, the defenders were aware that the pursuer's fee in relation to the provision of these services was £7,500. This was the date for the purpose of Article 3 of the Directive; the same result is reached when one looks to section 4(5) of the 1998 Act. Using the language of that section, 1 February 2006 was the day on which the defenders had notice of the amount of the debt or the sum which the pursuer claims is the amount of the debt, namely £7,500.

[14] The defenders might argue, under reference to section 4(3) of the 1998 Act, that the pursuer and the defenders had agreed a date for payment of the debt, and that this was the relevant day unless the debt relates to an obligation to make an advance payment. This argument depends on a proper interpretation of the 1998 Act. A purposive construction had to be given to the 1998 Act - see Litster v Forth Dry Dock Co Ltd 1989 SC (HL) 96 per Lord Oliver of Aylmerton at 120. As was observed in QDQ Media SA v Alejandro Omedas Lecha, case C-235/03 [2005] ECR I-1937,

"when applying national law, whether adopted before or after a Directive, the national court having to interpret that law must do so, as far as possible, in the light of the wording and the preface of the Directive so as to achieve the result it has in view ...".

The same point was made in Marleasing SA v La Comercial Internacional de Alimentacion SA, case C-106/89, [1991] ECR I-4135 at 4149. The purpose of the Directive (and of the 1998 Act) was to combat late payment. Domestic law should be interpreted, so far as possible, to achieve this purpose. The 1998 Regulations were amended by the Late Payment of Commercial Debts (Scotland) Regulations 2002 (2002 No. 335) specifically to apply the 1998 Act to Advocates. In terms of section 4(5) of the 1998 Act, the Court should hold that 1 February 2006 was the day on which the defenders had notice of the amount of the debt, being £7,500 (or in any event 75% of that figure).

[15] No interest will run on a sum claimed which is subsequently found to be unreasonably high. This was considered by Parliament in the passage of the 1998 Act - see Hansard, House of Lords Debates, 10 June 1998, Vol. 590 at column 1010. The mechanism for ensuring that interest runs only on the amount eventually found due is the remission procedure contained in section 5 of the 1998 Act - all as considered by the Court of Appeal in Ruttle Plant Hire Limited v Secretary of State for the Environment, Food and Rural Affairs (No. 2) [2009] EWCA Civ 97, [2010] 1 All ER (Comm) 444, particularly at paragraphs [29] to [32].

[16] The defenders make the argument (in their second esto case in Answer 6) that in accepting instructions for a legally aided case the pursuer impliedly agreed that the date for payment of the debt would be the date on which the solicitor's final account was lodged with the defenders. They also advance the slightly different argument (at paragraph 10.1 of their skeleton argument) that the whole circumstances of the transaction demonstrate that counsel has agreed that the date for any payment is deferred until the statement is issued under paragraph 6(3) of the 2002 Scheme for accounting for and recovery of counsel's fees, issued by the authority of the Faculty of Advocates and the Council of the Law Society of Scotland. However, there is a distinction between a statutory scheme and a contractual agreement. Section 4(3) of the 1998 Act deals with the latter. The 1989 Regulations, which prescribe procedures for payment of counsel's fees by the defenders, and in terms of which the Regulation 11 application was made, are a statutory scheme. Applying a purposive interpretation, the 1989 Regulations are not an agreement for the purpose of section 4(3) of the 1998 Act. Although the domestic legislation might be capable of being construed as including the 1989 Regulations, and that the submission of a Regulation 11 application amounted to an agreement for the purpose of section 4(3) of the 1998 Act, such a construction is neither inevitable nor consistent with the purpose of the Directive. Senior counsel referred to the well known dictum of Lord President Inglis in Batchelor v Pattison & Mackersy (1876) 3 R 914 at 918, and submitted that it was difficult to reconcile this with the suggestion that counsel has agreed to payment of his fees being made at a particular stage. The circumstances of counsel acting on behalf of a legally aided person do not readily lend themselves to constituting an agreement as to a date for payment of a debt for the purposes of section 4(3) of the 1998 Act.

[17] The mischief which the Directive sought to address was the excessive bargaining power of the debtor. The Court should therefore decline to hold that counsel who acts on behalf of a legally aided person, and who necessarily must come under the statutory scheme of the 1989 Regulations, must have agreed a date for payment of his fees for the purpose of section 4(3) of the 1998 Act. There are provisions within that Act which render contract terms void if they exclude the right to interest on a debt; standing these provisions, the Court should be slow to infer that there is an agreement between the parties that restricts the right to interest on a debt beyond the mechanism contained in section 4(5). There is very little in the regulations to identify when an Advocate's fee is due and payable. The matter was considered in McCall v Scottish Ministers [2005] CSOH 163, 2006 SC 266. That case concerned the different regime under the Criminal Legal Aid (Scotland) (Fees) Regulations 1989 (SI 1989/1491). In that context, Lord Carloway held (at paragraph [19]) that:

"when counsel performs work for a legally assisted person, he has a statutory entitlement to payment (Legal Aid (Scotland) Act 1986, section 33(1)). That entitlement exists as soon as the work has been performed. The entitlement was, until the coming into force of the new Regulations, to be paid reasonable remuneration, calculated in accordance with the schedule then attached to the Criminal Legal Aid (Scotland) Act (Fees) Regulations 1989 ..." "Immediately prior to conducting the work and during its execution, the petitioner would have expected her fee to be calculated under the schedule then existing. Leaving aside considerations of the 'cab-rank rule', her acceptance of instructions to do the work, indeed to carry out any work for assisted persons, may have been based on that expectation. In all these circumstances, the fee for work carried out prior to the coming into force of the new schedule do constitute 'possessions' for the purposes of the First Article" (of the Protocol).

[18] Even if a purposive interpretation strains the language of the 1989 Regulations, senior counsel submitted that such an interpretation must be applied. Looking to the Regulation 11 application, this is a claim for payment to account of fees amounting to £7,500. At the very least, it is a claim for payment of 75% of that figure. The 2002 Scheme for accounting for and recovery of counsel's fees is not relevant to the issue. This is a scheme to which the defenders were not a party. It is res inter alios acta. In any event, even if regard is to be had to this scheme, the terms of paragraph 6 of the scheme are consistent with the idea of interim payments having been made. The defenders appeared to argue that this scheme suggests that the Faculty of Advocates only regards fees as being due as at completion, but that is emphatically not the position adopted by the Faculty.

Submissions for the defenders
[19] Senior counsel for the defenders pointed out that the 1998 Act predated the Directive, but he accepted that it was necessary to construe the Act in light of the Directive. It was clear from the long title of the Act that it was concerned with making provision with respect to interest on the late payment of certain debts - there must be an obligation to pay the debt before the payment can be late and interest applied. Section 1(1) made it clear that the Act was concerned with a qualifying debt created by a contract (and section 2 makes it clear that the contract must be a commercial contract rather than a consumer contract). Section 2A was added to ensure that advocates, who do not have a contract with the person for whom they provide advice or representation, can have their fees subject to the provisions of the Act. In order to apply the provision it is necessary to look to the transaction in respect of which the fees are paid. The defenders are not mentioned in section 2A, nor in section 3. In a case in which the defenders are involved in paying monies from the Fund, where is the "obligation under a contract to which this Act applies to pay the whole or any part of the contract price" for the purpose of section 3(1)? In terms of section 4(3), the date for payment of the debt is tied to the creation of the debt by the contract. The existence of the debt is linked to the obligation to pay.

[20] Unlike in criminal legal aid cases, in which counsel submits fee notes direct to the defenders, in civil legal aid counsel submits fee notes to the instructing solicitor, and the only direct submission to the defenders is that provided for in Regulation 11 of the 1989 Regulations. Moreover, unlike in criminal legal aid, in civil legal aid the solicitor and counsel for the legally aided party may elect to be paid not out of the Fund, but from judicial expenses awarded in favour of the legally aided party by the court against the other party to the litigation. The point at which that election is made is the point at which the solicitor lodges his account with the defenders. It is clear from the words of Regulation 11(4) of the 1989 Regulations that fees are not due at the time that the application for payment of sums to account is made - the use of the future tense, "75% of the fees that will become eligible for payment", makes this clear. The obligation to make payment of those fees has not arisen at that stage, because the fees are not yet eligible for payment. Before payment the defenders must go through the procedure implicit in section 4(2)(a) of the 1986 Act of assessing whether or not the fees and outlays were properly incurred by counsel for providing legal aid or advice or assistance under the Act. Eligibility for payment is central to this exercise, which can only be carried out at the conclusion of the proceedings; Regulation 11 of the 1989 Regulations is only concerned with a claim for payment of sums to account of fees necessarily and reasonably incurred, and is not concerned with eligibility for payment. Indeed, this is made abundantly clear by Regulation 11(5) which states that "the making of a claim under this Regulation shall not be regarded as an account of expenses ...". In relation to a Regulation 11 claim, the defenders do not have to carry out the exercise which is required when they pay counsel's fees from the fund. There is not enough information provided to the defenders in the Regulation 11 form, nor in the material submitted with it, to enable them to decide what is eligible for payment under section 4 of the 1986 Act.

[21] Senior counsel drew my attention to the agreement about the defenders' practice in relation to payment of counsels' fee notes, the 2002 Scheme and the Guide to the Professional Conduct of Advocates, as contained in paragraphs 24, 25 and 26 of the Joint Minute (No. 23 of process). The court must ask itself what is the "transaction" for the purpose of section 2A of the 1998 Act. To answer this, it is necessary to look at all of the circumstances. These must include the language of Regulation 11(4), the procedures which the defenders require to go through before making payment of fees from the Fund, the terms of the Scheme, and the agreed practice of the defenders. All of these point to the obligation on the defenders to pay counsels' fees from the Fund not arising until the solicitors account is received by the defenders and to the conclusion of the action.

[22] In support of this proposition senior counsel referred to Drummond v Law Society of Scotland 1980 SC 175 and to McCall v Scottish Ministers 2006 SC 266. The former was concerned with whether interest ran ex lege on counsels fees for a criminal legal aid case under section 6(4) of the Legal Aid (Scotland) Act 1967 (as amended); the latter was also concerned with criminal legal aid, and although the court held that fees for work carried out constituted possessions for the purposes of the First Article, it did not address the question of when payment had to be made. In the present case, the first occasion on which the defenders were provided with all counsels' fee notes, together with a certificate by the instructing solicitor that they represented a true and complete record of all the work done, was when the solicitors' account was received by the defenders on 23 February 2008. It was not until 30 days after the receipt of that account that statutory interest began to run. Article 3 of the Directive was predicated on the basis that payment was late; in the present case, no payment was due until the solicitors' account was sent to the defenders after the conclusion of the action. That view receives support from the docquet appended to each fee note issued on behalf of the pursuer by Faculty Services Limited, stating that responsibility to recover fees in legally aided cases lies with the instructing Solicitor. This is quite distinct from the Regulation 11 procedure, in which counsel can make a claim against the defenders for payment on account.

[23] In summarising the defenders' position about the Regulation 11 application, senior counsel adopted paragraph 10 of his skeleton argument (No. 19 of process) and reiterated that both Regulation 11 and paragraph 6 of the Scheme pointed to the date at which counsel was entitled to payment of fees being the conclusion of the litigation, as that is the only point at which the defenders can carry out the assessment required under section 4 of the 1986 Act. Regulation 11 was concerned solely with payment to account of fees which will become eligible for payment in the future, and so were not eligible for payment at that time. There was nothing to justify treating a payment to account as amounting to a claim for payment for the transaction itself. Regulation 11 did not state that the defenders shall pay on any claim, and indeed they could not pay more than 75% of the claim. Given that they were unable to pay more than this percentage, it is unlikely that the whole debt would be payable then.

[24] Senior counsel concluded by referring to Legal Services Commission v Henthorn [2011] EWHC 258 (QB). That case concerned a claim for recovery by the Legal Services Commission of sums it contended were overpaid out of the legal aid fund to a barrister. These overpayments were made under a payment on account scheme which shared certain features with the Regulation 11 procedure, but was not in identical terms. The evidence in that case was clearly to the effect that the Legal Services Commission did not undertake any significant amount of checking, monitoring or verification of sums being claimed under the payment on account scheme. That case underscored the difference between a payment on account to counsel and a final liability to pay for work which was done. In the Scottish procedures, the defenders only made a brief assessment at the stage of a Regulation 11 application, and did not go through the full procedure for ascertaining what was due to counsel from the Fund.

[25] Senior counsel agreed that the present case should be put By Order shortly after the issuing of this opinion, to enable parties to consider further procedure.

Reply for the pursuer

[26] Senior counsel for the pursuer reiterated that there was an underlying obligation on the defenders to pay the whole of the fee indicated on the Regulation 11 application form, which was a qualifying debt in terms of section 3 of the 1998 Act. The pursuer had a statutory entitlement to be paid, and this created a corresponding obligation on the defenders to pay.

[27] Faced with the difficulty of the use of the future tense in Regulation 11(4) of the 1989 Regulations, even if the whole fee did not become eligible for payment until the conclusion of the proceedings, there was a statutory entitlement to payment of 75% at the time of the Regulation 11 application. The defenders had no discretion in making that payment. Counsel might decide not to make such an application, but if the application was made, the defenders must pay 75% of the indicated fee. If, when a final assessment of fees necessarily and reasonably incurred in connection with the proceedings was carried out at the conclusion of the proceedings and it was ascertained that an overpayment was made, provision is made for such a situation in Regulation 11(6) (and analogous provisions were discussed in Legal Services Commission v Henthorn). A qualifying debt as defined in section 3 of the 1998 Act includes an obligation to pay any part of the contract price. Accordingly, even if the entire fee is not payable until conclusion of the proceedings, there is a statutory obligation on the defenders to pay 75% of the fee claimed in a Regulation 11 application. Interest accordingly runs on this figure from a date 30 days after the defenders received the application.

[28] Under reference to the Directive, senior counsel noted that the defenders accepted that this was a commercial transaction. In terms of recital (16), late payment constitutes a breach of contract. There is a statutory entitlement in the present case to payment of 75% of the stated fee at the date on which the Regulation 11 application was received, and failure to make payment of that sum at that time is equivalent to breach of contract. Article 2 provides that "late payment" means exceeding the contractual or statutory period of payment; in terms of Article 3, paragraph 1(b)(i), interest becomes payable automatically 30 days following the date of receipt by the debtor of the invoice or an equivalent request for payment. The procedure of acceptance or verification, which is the subject of paragraph 1(d)(iv) of Article 3, is not concerned with whether the price was right, but whether the services were in conformity with the contract.

Response for the defenders

[29] Senior counsel for the defenders noted that the secondary position of the pursuer as stated in submissions was different from that advanced on record. He observed that there was an absence of mandatory language in Regulation 11(4) of the 1989 Regulations; this provided a cap on what could be paid by the defenders in respect of a Regulation 11 claim, but it did not oblige them in every case to pay 75% of the stated fees.

Discussion

[30] It may appear somewhat anomalous in the 21^st century that an advocate may have to wait for many years after the date on which he has provided professional services to a legally aided person in civil proceedings before he receives payment of his fee for doing so. It may appear surprising that an argument may be capable of being advanced that an advocate, being a sole practitioner, is not entitled to interest on his fee over the whole of that period, particularly when the body which bears the primary responsibility for payment of that fee is an organ of the state, namely the Scottish Legal Aid Board. At first blush, such a situation might appear to fall fairly and squarely within the purposes of the Directive, as an abuse of freedom of contract to the disadvantage of the creditor, and procuring the debtor additional liquidity at the expense of the creditor.

[31] That an argument may be made that counsel is not entitled to interest on his outstanding fees in proceedings funded under the Civil Legal Aid Provisions is in part a reflection of the professional position of an advocate, which is unusual, if not unique, amongst the professions. That position was considered by the First Division in Bachelor v Pattison and Mackersy, and the well known dictum of Lord President Inglis (at page 918) is perhaps worthwhile repeating in part here:

"An advocate in undertaking the conduct of a cause in this Court enters into no contract with his client, but takes on himself an office in the performance of which he owes a duty, not to his client only, but also to the Court, to the members of his own profession, and to the public. From this it follows that he is not at liberty to decline, except in very special circumstances, to act for any litigant who applies for his advice and aid, and that he is bound in any cause that comes into Court to take the retainer of the party who first applies to him. It follows, also, that he cannot demand or recover by action any remuneration for his services, though in practice he receives honoraria in consideration of those services. Another result is, that while the client may get rid of his counsel whenever he pleases, and employ another, it is by no means easy for a counsel to get rid of his client. On the other hand, the nature of the advocate's office makes it clear that in the performance of his duty he must be entirely independent, and act according to his own discretion and judgment in the conduct of the cause for his client."

[32] Notwithstanding that, the provisions of the 1998 Act were expressly applied to advocates by section 2A of the Act, added by the Late Payment of Commercial Debts (Scotland) Regulations 2002/335. Accordingly there is now provision for the application of interest in the event of late payment of counsel's fees. In order to ascertain whether, and if so from what date, interest runs on counsel's fees, it is necessary to look to the transaction as a whole, the agreed practices as set out in the Joint Minute, and the terms of the 1986 Act and the 1989 Regulations. In construing the Act and Regulations, it is not disputed that a purposive interpretation is required - see Litster v Forth Dry Dock Co Ltd; QDQ Media SA; and Marleasing (supra).

[33] As senior counsel for the defenders observed, the 1998 Act and the Directive are not concerned with applying interest to all debts, but only with interest in case of late payment of debts. In order to ascertain if a payment is late, it is necessary to ascertain when the obligation to pay the debt arises. If the obligation to pay has not yet arisen (or, viewed from the creditor's perspective, if he is not presently entitled or eligible to be paid the debt), then no interest will run under the 1998 Act, nor is the Directive aimed at this.

[34] The pursuer's primary position in his Skeletal Submissions was that interest runs on the whole of counsel's fee from a date 30 days after the fee note was issued to the instructing solicitor. However, there is no suggestion that the fee note was issued to the defenders at this time, nor that they received an invoice or equivalent request for payment. In the event that counsel did not make a Regulation 11 claim at some stage in the course of the proceedings, the first time that the defenders would receive or see an invoice or equivalent request for payment would be when the solicitor's account was submitted to them after the conclusion of the proceedings. In that event, neither sub-paragraphs 1(b)(i) or (ii) of Article 3 of the Directive would be triggered until the solicitor's account was received by the defenders. There is nothing in the Act, the Regulations (or the Scheme for that matter) which suggests that counsel has a present entitlement or eligibility to be paid his fee by the defenders before they have received any invoice or equivalent request for payment. The practice in criminal legal aid matters is quite different, involving as it does counsel submitting fee notes directly to the defenders. I consider that the decision not to advance this argument at debate was well made.

[35] The question remains what is the effect of the Regulation 11 claim. The primary submission for the pursuer at debate was that this claim amounted to an invoice or equivalent request for payment of counsel's entire fee, to use the language of Article 3 of the Directive. To use the language of section 4(5) of the 1998 Act, it was the day on which the purchaser had notice of the amount of the debt or (where that amount is unascertained) the sum which the supplier claims is the amount of the debt. That amount was, in the case of fee note 8, £7,500, being the amount stated in box B1 of the application form as being "fees excluding VAT".

[36] This argument would have some force if there was anything to show that the debt - that is, the fees earned, amounting to £7,500 excluding VAT - was at that time eligible for payment. However, there is nothing in the information before me to suggest that this was so. Indeed, the wording of Regulation 11(4) of the 1989 Regulations suggests that the fee was not at that time eligible for payment. The use of the future tense, "the fees that will be eligible for payment", suggests the contrary. This is reflected in the wording of the application form itself, which also refers to the amount of fees necessarily and reasonably incurred that will become eligible for payment. The future tense in this context is not compatible with the argument that this is a debt which is presently due and which the defenders have an immediate obligation to pay.

[37] It is, of course, open to the supplier and the purchaser to agree a date for payment of the debt, and in terms of section 4(3) that will be the relevant day for the purpose of section 4 of the 1998 Act. However, there is nothing to suggest that the parties have agreed that the fee of £7,500 was payable, or that the defenders had any obligation to pay this, at the date that they received the Regulation 11 claim. The defenders required to carry out the assessment exercise set out in section 4(2) of the 1986 Act, and satisfy themselves that the fee was properly incurred, before they could properly make payment out of the fund. There is nothing in the facts and practices set out in the Joint Minute of Admissions (and in particular paragraphs 23-26 thereof) to suggest that there was any agreement that the pursuer was entitled to full payment of his fee note when the Regulation 11 claim was received by the defenders. Again, to the contrary, Regulation 11(1) expressly refers to counsel submitting a claim for payment of sums to account of his fees, and Regulation 11(4) provides that the amount of any payment in respect of the claim under the Regulation shall be 75% of the fees that will become eligible for payment.

[38] Even applying a purposive construction to the 1989 Regulations and the 1998 Act, I am unable to find anything to support the argument that the whole of the sum stated to be counsel's fee was eligible for payment at the time of the claim, or that the defenders had an obligation to pay that sum at that time. If they did not have such an obligation to pay then, it follows that payment at a subsequent date cannot be categorised as late just because it is made more than 30 days after receipt of the claim. It was not at that time a qualifying debt for the purpose of section 3 of the 1998 Act. The obligation to pay the full fee had not yet arisen, so payment was not late, and interest on the sum of £7,500 does not arise in terms of the 1998 Act or the Directive. I therefore reject the primary submission for the pursuer.

[39] Matters are rather different in relation to the pursuer's secondary submission, which is that interest runs on 75% of the fee, being £5,625. The Regulation 11 claim is an application for payment on account. An obligation to pay a part of the contract price is a "qualifying debt" for the purpose of section 3 of the 1998 Act. Regulation 11 provides the mechanism for a claim for such a qualifying debt. The pursuer is claiming a payment to account of 75% of the fee which will become eligible for payment, and the Regulation provides that the defenders shall pay this. This application amounts to an invoice or equivalent request for a payment on account.

[40] I can find nothing to support the view which the defenders appear to have taken that they had a discretion at this stage as to how much they should pay in response to the claim. Regulation 11(4) does not suggest that they may pay any sum up to a maximum of 75%, but rather provides that they shall pay 75%. I consider that this constitutes an obligation to make payment when the claim is received; interest will become payable automatically 30 days after the defenders receive a Regulation 11 claim on the sum of 75% shown in box B2 of the application form.

[41] The defenders argue against this that they do not have sufficient information at the time that a Regulation 11 claim is made to enable them to carry out the necessary assessment. The answer to this argument is twofold. First, Regulation 11(1) requires counsel to submit a claim "in such form and complying with such terms and containing such information as the Board may require for assessment purposes". If the defenders need more information, they must ask for it. They cannot defeat the intention of the Directive and the 1998 Act by complaining that their own requirements do not permit them to assess. Second, it is clear from the structure of Regulation 11 that full assessment of the amount claimed is neither necessary nor expected at this stage. Regulation 11(6) makes provision for the situation in which the sum paid to counsel on account exceeds the total fees which are ultimately found to be allowable to counsel.

[42] For these reasons, I consider that the secondary submission made by senior counsel for the pursuer is sound and that by reason of the Directive and the 1998 Act, interest runs on the sum which is stated to be 75% of the fees that will become eligible for payment and earned by counsel during the period covered by the claim, from a date 30 days after the defenders receive the Regulation 11 claim, until payment.

[43] This case will be put By Order in early course to enable parties to address me on further procedure.