Exclusive: Landmark ‘PPI for lawyers’ case could lead to avalanche of claims against SLAB

The Scottish Legal Aid Board (SLAB) could be liable for as much as £10 million following a landmark decision at Edinburgh Sheriff Court this week in a case that may prove to be one of ‘PPI for lawyers’ and could lead to an avalanche of late payment claims from Scottish solicitors.

The case establishes that the regime on late payment of fees applies to solicitors, meaning that SLAB may be liable to pay a statutory penalty of £40 on every account that they fail to settle within 30 days. Interest, at eight per cent above the base rate at the time the account was raised, will also be due as will any legal recovery costs that were entailed if a debt collection agency was used.

As a result of Monday’s ruling Scottish legal aid solicitors will be able to demand payments for accounts raised going back five years.

Ormiston Law Practice took the board to court, seeking declarator that SLAB was liable to pay statutory interest on fees it owed the firm – as well as a decree for payment of the interest.

While the sum sought in the action by the firm was small, Sheriff Holligan was told that the total amount owed to Ormiston was “significant”.

It is thought that, in respect of fees owed to solicitors across Scotland, SLAB may be liable for a figure in the region of £10m, based on the number of accounts it pays per year; the number of these that receive second payments and the five year prescription period.

The case revolved around whether solicitors are entitled to interest on late fees under the Late Payment of Commercial Debts (Interest) Act 1998. Counsel for the defenders, Alastair Duncan QC, argued that solicitors were not entitled to interest because payments are made to them under a statutory framework and not the law of contract.

Andrew Smith QC

But Andrew Smith QC, for the pursuers, argued that the court should focus on the transactional nature of the arrangement – under which SLAB funds payment of solicitors for the services they render to clients – which brings it within the ambit of the EU Directive on late payments in commercial transactions.

Furthermore, counsel argued that the 1998 act should be given a purposive construction and that the court was bound in this regard by the Inner House case of Smith – which concerned the calculation on interest for late fees paid to advocates and whose pursuer was the same Andrew Smith in the present case.

Sheriff Holligan said it was “common ground between the parties that [the 1998 act] requires to be interpreted in accordance with the Directive.”

He stated in his judgment: “In my opinion, the relationship in the present case between a solicitor and the Board can properly be described as a ‘commercial transaction’. The pursuer is in business, the Board is not but the Directive expressly applies to public authorities which are not in business. As the recitals make clear the action of public authorities have commercial effects.”

“The relationship between the parties falls within the structure of the Directive and the mischief it was intended to address namely the late payment of monies owing,” he added.

The sheriff said: “It follows that I accept the conclusion urged upon me by the pursuer.”

A spokesperson for the Scottish Legal Aid Board said: “We are currently carefully considering the terms of the judgement issued on 6 January, and this will include consideration of appeal.

“The law is not straightforward in this area. The main issue in the case is whether or not the 1998 act, which applies to contracts, also applies to payments made by SLAB to a solicitor in fulfilment of its obligations under the Legal Aid (Scotland) Act 1986 and advice and assistance regulations.

“While in some legal aid cases fees are payable in a set amount, in other cases there is no set fee and we are required to perform a verification process to determine the level of fees and outlays prescribed by Parliament.

“This involves a determination as to whether the costs incurred were reasonable or necessary in the circumstances of the account. We make payment of claims submitted on assessment of the information and vouching made available to us.

“Further information may become available at a later date or there may be negotiations about the appropriate fee. This can result in further payment being made at a later date but this is not necessarily late payment.

“Where a solicitor is dissatisfied with the assessment they can have their account considered by the auditor.

“The present case is concerned with whether interest is due on the difference between the amount already paid by SLAB to the firm and the amount which the auditor ultimately determined was due by SLAB to the firm.”