Payments of solicitors' fees by the Scottish Legal Aid Board do not attract statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 if not made within 30 days, the Sheriff Appeal Court has ruled.

Sheriff Principal Mhairi Stephen QC, Sheriff Principal Duncan Murray and Sheriff Principal Craig Turnbull gave the decision in allowing an appeal by the Board in a case brought by Ormistons Law Practice Ltd. The claim concerned interest of £23.59 on a balance of £131.70 found due by the auditor following a taxation, but the case was said to affect "many thousands of legal aid accounts".

However the court noted that the position of solicitors was anomalous when the Board accepted liability to pay interest on counsel's fees, and considered that fairness should lead to solicitors receiving the same benefit – a matter for the Parliament to address.

At first instance the sheriff held that "commercial transaction", in the EU directive on which the Act was based, was wider than a contract; that as the directive was expressed to cover the legal profession and also public authorities, and the pursuers were in business, the relationship between them and the Board in this case could properly be described as a commercial transaction; and that the mischief the directive was intended to address covered the late payment of money owing to the pursuers.

On appeal the Board argued that the sheriff erred in concluding, first, that the schemes for payment of legal advice and assistance, and assistance by way of representation, fell within the directive; and secondly, that if they did, the 1998 Act could be construed in a manner that gave effect to the intention of the directive. The solicitors argued that on a purposive construction there was no violation of the terms of the directive in applying it to the Board's obligations under the Legal Aid (Scotland) Act 1986; and it was fundamental to both the directive and the 1998 Act that there was no requirement that the services were provided to the debtor.

Sheriff Principal Stephen, delivering the opinion of the court, said it was necessary to look first at the structure and context in which the parties operated. Although "commercial transaction" was a broader concept than a contract, fulfilment by the creditor of contractual and legal obligations was a precondition of entitlement to interest. The directive did not regulate transactions with consumers, and "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. The LAA [Legal Advice and Assistance] scheme is a statutory scheme by which the Board is obliged to make payments from the fund... if called upon to do so by virtue of the solicitor submitting a claim for fees and outlays properly incurred in acting for a client in receipt of LAA."

Dealing with the respondents' argument she continued: "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... Instead, the relationship is one of regulated indemnity for payment of fees and outlays reasonably and necessarily incurred on behalf of the client... Any services provided are by the solicitor to the client, that being a consumer transaction which is excluded from the directive".

Further, the Board's obligations to the solicitor arose not as a result of a commercial transaction between the parties but in terms of the statutory framework of the 1986 Act and associated regulations. "In our opinion, that framework sits outwith the scope of the directive."

In any event there was a fundamental difficulty for the respondents in interpreting the 1998 Act in a manner which encompassed the statutory legal aid scheme. "To read into ss 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 followed that the appeal had to be allowed. "However," Sheriff Principal Stephen observed, "the matter does not end there." Referring to Smith v Scottish Legal Aid Board (2012), she commented: "it appears to us that the application of the directive was not seen as controversial in the context where a public authority is making payment of fees incurred by counsel. It undoubtedly creates an unattractive and surprising anomaly that the Board accepts that they are liable to pay interest on counsel's fees but should not be liable for interest on the fees and outlays paid to solicitors as a result of our analysis in this case...

"Considerations of consistency and, indeed, fairness would lead to the expectation that the solicitor branch of the legal profession should also have the benefit of the directive in respect of remuneration for fees and outlays from the fund overdue for payment. In our view, that is a matter that requires to be addressed by Parliament."

Click here to view the opinion of the court.