FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President Lady Paton Lord Emslie	[2012] CSIH 14 CA34/11 OPINION OF THE COURT delivered by THE LORD PRESIDENT in causa ANDREW SMITH, Q.C. Pursuer and Respondent; against THE SCOTTISH LEGAL AID BOARD Defender and Reclaimer: _______

Act: R Smith, Q.C., Pugh; Balfour + Mason LLP

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

15 February 2012

Regulation 11

[1] Regulation 11 of the Civil Legal Aid (Scotland) Fees Regulations 1989 (as amended) (the "1989 Regulations"), which were made under powers granted by the Legal Aid (Scotland) Act 1986, provides:

"(1) ... 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 [Scottish Legal Aid] 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.

...

(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 ...

(6) Where payment has been made in accordance with the provisions of this Regulation but the payment made exceeds ... 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 ... counsel ...".

The background

[2] The respondent was instructed as senior counsel for a pursuer in a civil litigation in which the pursuer had received legal aid. A period of at least two years having elapsed since the date on which the Board gave notice in writing of the grant of legal aid, a claim was on 31 January 2006 submitted on behalf of the respondent to the Board under Regulation 11. The claim was submitted on a form devised by the Board. The claim as completed set out the whole particulars sought in the form, including the name of the assisted person, counsel's name, the total amount of the fee said to have been earned (in this case £7,500, excluding VAT) and the amount for which payment was sought (£5,625), being 75% of £7,500. No further details were sought in the form. In particular, no information was sought to vouch that the amount of the fee said to have been earned had been necessarily and reasonably incurred in connection with the proceedings. The claim was accompanied by a certificate given by Faculty Services Limited on behalf of the respondent that, to the best of its knowledge and belief, the information given in the claim was correct, Faculty Services Limited confirming that the claim was in accordance with Regulation 11 of the 1989 Regulations. In response to this claim the Board on 3 March 2006 paid a total of £260 plus VAT. The calculation of this figure remains obscure.

[3] On the first day of the proof in the proceedings (20 February 2007) the pursuer abandoned the action. The defender was assoilzied. The court by its interlocutor found no expenses to be due to or by either party. The proceedings for which civil legal aid had been granted to the pursuer were, accordingly, then complete.

[4] On 22 January 2008 the solicitors who had instructed the respondent submitted to the Board their account of expenses and outlays in respect of the action in question. That account gave details of the work done by the respondent, including that in respect of which the Regulation 11 claim had been made. In February 2008 the Board paid a further sum in respect of the respondent's fee. On 4 February 2011 it paid the remainder of the £7,500 plus VAT fee.

[5] An issue arose between the present parties as to the dates from which interest should run in terms of section 4 of the Late Payment of Commercial Debts (Interest) Act 1998 in respect of the fee claimed in January 2006 and in respect of certain other fees. After a debate in the Outer House the Lord Ordinary held that interest should run on the value of the sum claimed in the Regulation 11 application (being 75% of the total fee) from 30 days after 1 February 2006, being the date on which the Regulation 11 application was received by the Board, and thereafter on the total value of the fee from 30 days after 23 January 2008, being the date on which the Board received the solicitors' account of expenses. This determination gave effect to a secondary submission advanced on behalf of the respondent. The Board's position before the Lord Ordinary, and before us, was that interest should run but only from 30 days after receipt by it of the solicitors' account.

[6] Before the Lord Ordinary there was discussion of two other fees rendered by the respondent. The Lord Ordinary made, in respect of the first of these, a finding equivalent to that made in respect of the claim made on 31 January 2006 and, in respect of the second of them, a finding which reflected the acknowledged circumstance that that fee had been rendered after the proceedings were complete. It was subsequently realised that the first of these two fees had also been claimed after the completion of the proceedings and that, accordingly, the claim was, in terms of Regulation 11(1), incompetent. At the outset of the reclaiming motion it was agreed that the Lord Ordinary's interlocutor should be varied to bring the finding as regards the first of these two fees in line with the second of them. Thus, the only issue for determination in this reclaiming motion concerns whether or not the Lord Ordinary's finding in relation to the Regulation 11 claim submitted on 31 January 2006 was correct.

The legislation
[7] The Late Payment of Commercial Debts (Interest) Act 1998 (as amended) provides:

"1(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) Interest carried under that implied term (in this Act referred to as 'statutory interest') shall be treated, for the purposes of any rule of law or enactment (other than this Act) relating to interest on debts, in the same way as interest carried under an express contract term.

...

2(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 ...

(2) In this Act 'contract for the supply of goods or services' means -

(a) a contract of sale of goods; or

(b) a contract (other than a contract of sale of goods) by which a person does any, or any combination, of the things mentioned in subsection (3) for a consideration that is (or includes) a money consideration.

(3) Those things are -

...

(c) agreeing to carry out a service.

...

(7) In this section -

'business' includes a profession and the activities of any government department or local or public authority;

...

'government department' includes any part of the Scottish Administration.

2A 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(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 ...

...

4(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 the 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.

...

(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."

Section 5 makes provision for the remission in certain circumstances of statutory interest. Section 6 provides for the setting by order of the rate of statutory interest.

[8] Directive 2000/35/EC of the European Parliament and the Council of 29 June 2000 on combating late payment in commercial transactions provided by Article 6.1 that Member States should bring into force the laws, regulations and administrative provisions necessary to comply with the Directive by 8 August 2002. Section 2A of the 1998 Act was inserted in furtherance of that obligation. Paragraph (7) of the preamble to the Directive stated that 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; and paragraph (16) that 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. Paragraph (16) continues:

"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."

[9] Article 2 of the Directive defines "commercial transactions" as meaning transactions between undertakings or between undertakings and public authorities which lead to the delivery of goods or the provision of services for remuneration, and "undertaking" as meaning any organisation acting in the course of its independent economic or professional activity, even where it is carried on by a single person. Article 3.1 provides:

"Member States shall ensure that:

...

(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;

...".

[10] It is plain that "undertaking" in the Directive was so defined as to include persons carrying on the profession of advocate in Scotland. The relationship between an advocate and his client is not at common law contractual (Batchelor v Pattison and Mackersy (1876) 3 R 914); nor is contract the basis of any other professional relationship which an advocate may have - such as with a solicitor or with the Board. However, in order to ensure that advocates had the benefit of the Directive, the 1998 Act was amended in August 2002 by the insertion, as narrated above, of section 2A.

[11] In 2006 there was in force a Scheme issued in 2002 by the Faculty of Advocates and the Council of the Law Society of Scotland for Accounting for and Recovery of Counsel's Fees. The Board was not party to this Scheme. It is accordingly of little assistance to an analysis of counsel's relationship with the Board. Suffice it to say that the Scheme envisages the solicitor in civil legal aid cases rendering his account to the Board after completion of the litigation.

[12] More in point are the statutory provisions governing civil legal aid. The Legal Aid (Scotland) Act 1986 (as amended) provides:

"4(1) The Board shall establish and maintain a fund to be known as the Scottish Legal Aid Fund (in this action 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 ... counsel ... in respect of fees ... properly incurred ... in connection with the provision, in accordance with this Act, of legal aid ...;

...

(3) There shall be paid into the Fund -

...

(b) any sum recovered under an award of a court or an agreement as to expenses in any proceedings in favour of any party who is in receipt of civil legal aid;

...

17(2A) Except in so far as regulations made under this section otherwise provide, any sum of money recovered under an award of or an agreement as to expenses in favour of any party in any proceedings in respect of which he is or has been in receipt of civil legal aid shall be paid to the Board.

...

31 ...

(7) Except in so far as expressly provided under this Act, the fact that the services of counsel ... are given by way of legal aid ... shall not affect the relationship between or the respective rights in that connection of counsel, solicitor and client.

32 Where legal aid is available to a person in connection with any proceedings (whether legal aid is available in connection with all or only part of the proceedings) -

(a) ... counsel providing legal aid shall not take any payment in respect of ... anything done in connection with such proceedings during any period when legal aid was so available except for such payment as may be made, in accordance with this Act;

...

33(1) ... any ... counsel who acts for any person by providing legal aid ... 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 ... properly incurred by him in so acting.

...

(2) The Secretary of State may, by regulations made under this section, make such provision as seems to him appropriate in respect of the fees ... of ... counsel ...

(a) acting in any proceedings for a person to whom legal aid has been made available ...".

[13] The 1989 Regulations further provide:

"3(1) These Regulations shall regulate ... the fees allowable to counsel, from the Fund in respect of legal aid under the Legal Aid (Scotland) Act 1986, other than criminal legal aid, upon any taxation in accordance with Regulation 12.

(2) Subject to paragraphs (3)(b), (4) and (5), ... counsel shall be paid fees, in accordance with regulations 4 to 12 of, and the Schedules to, these Regulations.

(3) Where fees ... are recovered by virtue of an award of expenses in favour of a person who has received legal aid or of an agreement as to expenses in favour of such a person -

(a) accounts of such fees and outlays, where they are taxed, shall be taxed as if the work done for that person were not legal aid; and

(b) the Board may, subject to paragraphs (4) and (5), instead of making payment in accordance with paragraph (2), pay to the ... counsel ... who acted for that person, the amount of any fees ... so recovered.

(4) The Board shall only make payment in accordance with paragraph (3)(b) where -

(a) it receives a request for such payment from the solicitor who, at the conclusion of the proceedings, was acting for the person in receipt of legal aid; and

(b) that solicitor has consulted with any counsel who was acting for that person at the conclusion of the proceedings regarding that request.

(5) The Board shall deduct from the sum payable in accordance with paragraph (3)(b) the amount of any payment made, or due to be made, by it to the ... counsel referred to in paragraph (4) ... in respect of those proceedings.

...

8(1) ... accounts prepared in respect of fees and outlays allowable to solicitors shall be submitted to the Board not later than 6 months after the date of completion of the proceedings in respect of which that legal aid was granted ...

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.

...

12(1) If any question or dispute arises between the Board and a ... counsel ... as to the amount of fees allowable to counsel, from the Fund under these Regulations, other than regulation 11 above, the matter shall be referred for taxation by the auditor."

Discussion

[14] The 1998 Act envisages a contractual relationship between the supplier of services and the purchaser: the definition of "qualifying debt" in section 3(1) is of a debt created by virtue of an obligation under a contract. However, the 1998 Act has to be read against the terms of the 2002 Directive, notwithstanding that the former preceded the latter in date. The Directive envisages that all professional persons should, in their commercial relationships, have the benefit of the Directive. Accordingly, the 1998 Act was, within the period for transposition of the Directive, amended by the insertion of section 2A. That section applies the provisions of the Act 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 the Act. Thus, it is vain, when considering the application of the Act to the professional services rendered by an advocate, to search for a contractual obligation - indeed, perhaps, for any legal obligation.

[15] Regulation 11 of the 1989 Regulations makes provision for payments to account; the regulation is so side-noted. It envisages that counsel in a civil legal aid case may, prior to the completion of the relative proceedings, submit a claim for a payment to account. It is thus concerned with alleviating the notorious situation in which counsel in civil legal aid cases might require to wait many years before being paid fees duly incurred. A payment to account is to be of "fees necessarily and reasonably incurred in connection with these proceedings" - a variant of the test of "properly incurred" to be found in sections 4(2) and 33(1) of the 1986 Act, though that variation may not be important for present purposes. Any claim for payment under Regulation 11 has to be on such form and complying with such terms and containing such information as the Board may require for assessment purposes.

[16] The Board devised a form for the purposes of claims made by counsel under Regulation 11. That form was used for the purposes of the respondent's claim. Such information as was sought on the form was provided; at no stage did the Board suggest that anything more was required. The Notes for Guidance printed on the reverse of the form, under the heading "ELIGIBILITY FOR PAYMENT ON ACCOUNT", include the statement:

"In respect of any claim, the amount payable is 75% of the fees that will become eligible for payment and earned during the period covered by the claim."

This statement reflects Regulation 11(4) of the Regulations, which itself requires to be read along with Regulation 3(2) which provides, among other things, that counsel "shall be paid fees" in accordance with regulations which include Regulation 11. This imports, in our view, an obligation on the Board to make payment. Notwithstanding the reference in Regulation 11(4) to "any payment", this is not, in our view and contrary to the reclaimers' submission, a discretion vested in the Board.

[17] The statutory scheme accordingly envisages that, on the submission of a valid (including timeous) claim, the Board is obliged forthwith to make a payment to account of 75% of the fees "that will become eligible for payment ...". No payment to account will, of course, be made unless a valid claim is submitted under Regulation 11 and, if it transpires in due course that no fee (or a fee of less than 75% of fee claimed to have been earned) was in fact eligible for payment, an overpayment will have been made, with an obligation on counsel under Regulation 11(6) to repay to the Fund that overpayment. But if a valid claim is made, the measure of the Board's obligation to make payment to account will be 75% of the fee claimed.

[18] Of course, at the stage when the claim under Regulation 11 is made it may not be possible to determine definitively whether the fee claimed to have been earned has been necessarily and reasonably incurred in connection with the proceedings. That confidence may not emerge until the solicitors' account has been lodged with, and scrutinised by, the Board - though it is clear that, in terms of Regulation 11(1) it is open to the Board to insist on such terms and to demand such information as it may require for assessment purposes. The future tense - "will become eligible" - envisages future scrutiny but does not take away from the present obligation.

[19] In the present proceedings the Board has conceded (both before the Lord Ordinary and before us) that interest is payable on all of the fees in issue from 30 days after 23 January 2008 (the date when the solicitors' account was submitted to the Board) - by which time the account may not have been finally assessed or otherwise ascertained or quantified. That concession, which in our view is rightly made, acknowledges that interest may run in respect of a period prior to final assessment. That is consistent with interest running on a Regulation 11 claim from 30 days after its submission. There is nothing untoward about a debt being due albeit its true amount may not yet have been definitively ascertained (see, for example, 1998 Act, section 4(5)(b) and the observations on it in Ruttle referred to below).

[20] Reference was made in the course of argument to the practice whereby a solicitor acting for a legal aided party may, in the event of an award of expenses being made in favour of that party against another party, having consulted counsel opt to take the awarded expenses rather than payment out of the Fund. Any sum so recovered is to be paid into the Fund (1986 Act, section 4(3)(b)) but it is the practice of the Board to disburse it under deduction of any fees paid to account. Thus it may be that there is, in the event, no final assessment by the Board of the solicitors' account, including of the necessary and reasonable character of the fee or fees claimed under Regulation 11 prior to the completion of the proceedings. But we do not consider that the possibility of the fees being ultimately met out of an award of expenses made against another party takes away from the conclusion that 75% of any sum claimed under Regulation 11 as having been earned is payable by the Board not later than 30 days after the claim is received.

[21] We were referred in the course of the discussion to Legal Services Commission v Henthorn [2011] EWHC 258 (QB), a decision of His Honour Judge Anthony Thornton, Q.C., sitting as a High Court judge. The scheme under consideration in that case was one made under the (English) Legal Aid Act 1988. The Civil Legal Aid (General) Regulations 1989, made under the 1988 Act, also had payment to account provisions (Regulation 100) but these are not in the same terms as Regulation 11 of the Scottish Regulations of 1989. The case is accordingly of no direct assistance. Judge Thornton does, however, at para 31 indicate in relation to the payment to account scheme that "... by necessary implication, the application [for a payment to account] was to be based on a reasonable estimate of what the court would allow when undertaking a detailed assessment of the same work at the conclusion of the case". In relation to the Scottish scheme a like implication may arise - namely, that the application under Regulation 11 is to be based on a reasonable estimate of what the Board would allow if and when undertaking a detailed assessment of the same work after completion of the proceedings. Given that the claim may not be capable of detailed assessment when made, it may be some reassurance to the Board to know that it is being made by a professional person constrained by that implication. At para 42 Judge Thornton says:

"[Payments to account] were to be made from the fund towards a final liability of the fund to make payments for that work. That final liability was to be determined by a process of detailed assessment ...".

The respondent submitted that the reference to "final liability" imported that payments to account constituted an initial liability, not a discretionary power. That may or may not be capable of being inferred from that observation. But for the reasons given earlier we are satisfied that a valid claim under Regulation 11 of the Scottish Regulations gives rise to a liability on the Board.

[22] Reference was also made to Ruttle Plant Hire v Secretary of State (No.2) [2009] EWCA Civ 97; [2010] 1 All ER (Comm) 444. One of the issues in that case was when was the "relevant day" under section 4(2) of the 1998 Act. Jacob LJ, giving the leading judgment, observed at para [30] that the section contained two alternatives: "notice of the amount of the debt" and "notice of ... the sum which the supplier claims is the amount of the debt". The latter, he added, applied when the amount of the debt "is unascertained". Although Jacob LJ gave a wider rather than a narrower construction to the unascertained alternative, no question appears to have arisen in that case (which involved a contract for work and materials) that there was an obligation to make interim payments; in para [3] Jacob LJ refers to "the sums due for this work". The issue was from what day interest ran on sums which were recognised to be due. However, in addressing the second of the alternatives Jacob LJ at para [30] observes:

"Unless the sum has been determined already in a way binding on the parties, it is likely to depend on calculations which the supplier may have got right, or may have got wrong. In such a case it is not ascertained and what the supplier has to give notice of is what he claims to be due. He may or may not have got it right. In either case he is within the second half of the section."

Section 4(5) of the 1998 Act clearly envisages the existence of a debt albeit its amount is not ascertained.

Disposal

[23] For the reasons expressed above we are satisfied that the Lord Ordinary reached the correct conclusion as to the day from which statutory interest ran with respect to the Regulation 11 application received by the Board on 1 February 2006. In light of parties' agreement in relation to the two other fees referred to in paragraph 1 of the interlocutor of 15 November 2011, we shall vary that interlocutor so that interest runs on both of these fees from 30 days after 23 January 2008. As to the rest of that interlocutor, we shall adhere. There being other issues outstanding between the parties, we shall then remit to the Lord Ordinary to proceed as accords.