Sheriff Appeal Court finds Scottish Legal Aid Board not liable to pay statutory interest on overdue account

Ormistons Law Practice Ltd originally raised a commercial action against the SLAB seeking declarator that it was liable to pay statutory interest on part of their account relating to a particular case that remained unpaid within 30 days of the account being submitted. It claimed that the issue was of wider importance and could affect thousands of other accounts.

The appeal was heard by Sheriff Principal Mhairi Stephen QC, Sheriff Principal Duncan Murray, and Sheriff Principal Craig Turnbull. The appellant was represented by Duncan QC and the respondent by Smith QC.

Not a commercial transaction

In 2016, the SLAB made payment of £1796 to the respondent in relating to the case account. However, after the account was submitted for taxation, it was determined by the auditor that £131.70 remained due to the respondent from the SLAB. The balance was ultimately paid by the Board without statutory interest, which amounted to £23.59.

Following debate, in January 2020 the sheriff granted decree of declarator that the appellant was obliged to make payment of the interest in terms of the Late Payment of Commercial Debts (Interest) Act 1998, read with EU Directive 2011/7, which concerned the combating of late payment in commercial transactions. The sheriff noted that a “commercial transaction” was wider than a contract, and that while the Board was not a business the relationship between a solicitor and the Board could be described as commercial.

The Board contended that the sheriff had erred in concluding that the arrangements for payments to solicitors by the Board in respect of legal advice and assistance (LAA) fell within the scheme of the Directive. Further, the sheriff erred in concluding that the 1998 Act could be construed in a manner that gave effect to the intention of the Directive, as the Board had no contract with the respondent and was not a purchaser of their goods or services.

It was submitted for the Board that the transaction between a solicitor and client was a consumer contract, and therefore payments by the Board were not remuneration for a commercial transaction. The LAA scheme sat outside of any transaction and outwith the contractual obligation of the solicitor to the client or between the solicitor and the Board.

Fundamental difficulty

Delivering the opinion of the court, Sheriff Principal Stephen said of the Directive: “The purpose of the directive is plainly to address the scourge of late or delayed payments for goods or services by imposing a penalty in the form of interest. It aims to discourage late payment especially to small and medium size businesses.”

She continued: “If, as it appears to be, the scope of the Directive is limited to payments made as remuneration for commercial transactions then, it is doubtful whether payments made by a public authority as remuneration for services provided by solicitors to a client as part of a consumer contract fall within its scope.”

Examining the relationship between solicitors and the Board, she explained: “As no goods or services are being provided by the respondent to the Board the relationship between the parties is not in the nature of a commercial transaction as defined and envisaged by the Directive. The statutory scheme of LAA involves a process for payment of the solicitor’s fees and outlays rather than the provision of services to the Board. Instead, the relationship is one of regulated indemnity for payment of fees and outlays reasonably and necessarily incurred on behalf of the client.”

She continued: “The relationship between the solicitor and the Board is not therefore of the nature of a commercial transaction or contract envisaged by the Directive. The Directive is concerned with commercial transactions involving obligations on both sides. The obligations incumbent upon both the solicitor and the Board in LAA do not relate directly to the provision of services but rather their funding and are more akin to indemnity.”

Turning to whether the sheriff was entitled to construe the 1998 Act with the 2011 Directive, Sheriff Principal Stephen said: “A literal approach to these important provisions points to the conclusion that Parliament intended that statutory interest be applied only to contracts between purchaser and supplier. In enacting the 1998 Act Parliament did not use the term ‘commercial transaction’. Recognising that the 1998 Act predated the Directive and its predecessor the 2000 Directive we must interpret the 1998 Act in light of the purpose of the directive and its wording.”

She concluded: “The fundamental difficulty for the respondent lies not in substituting commercial transaction for contract but in interpreting the 1998 Act in a matter which encompasses the LAA scheme which is a statutory scheme. To read into sections 1 and 2 a statutory scheme for the provision of legal aid would be to alter the fundamental wording and purpose of the legislation. ‘It goes against the grain’ of the 1998 Act to interpret the legislation in the manner contended for by the respondent.”

For these reasons, the appeal was allowed, with decree of absolvitor pronounced in favour of the appellant.