Enterprise and Lifelong Learning Committee, 22 Jan 2003

Meeting date: Wednesday, January 22, 2003

Official Report 146KB pdf

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Subordinate Legislation

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Late Payment of Commercial Debts (Scotland) Regulations 2002 (SSI 2002/335)

Item 2 is on subordinate legislation. Before we start, I ask committee members to declare any relevant interests.

I should, perhaps, declare an interest as a member of the Law Society of Scotland.

No doubt Mr Jackson is about to do the same and declare his interest as a member of the Law Society of Scotland.

I have not been so insulted for a long time. [Laughter.]

I thought that I would just give you time to sit down Would you like to declare an interest?

I am a member of the Faculty of Advocates.

I seek guidance about what sort of interests we are legally obliged to declare.

All your shares, pensions and everything. No, seriously—

That will not take long.

We want to hear about your legal transgressions generally.

Would being a trustee of an organisation be a relevant interest?

We have particularly requested members to declare any interests because the committee's previous discussion on the regulations dealt with the relationship between advocates and solicitors and several members have specific interests in that area.

That is fine.

I welcome Iain Gray, the Minister for Enterprise, Transport and Lifelong Learning, who will say a few introductory words. I also welcome Lloyd Quinan, who will sit in on the committee's proceedings for this item. This is the second time that the committee has discussed the regulations. I am glad to say that I was not at the first meeting, but I am sorry to be here at the second.

I am grateful for the opportunity to address the issue again. When we discussed it previously, I undertook to return to the committee and report back on the consideration that the Executive had given to the issue and the work that it had done to address the concerns that were expressed. With the committee's forbearance, I will take a few minutes to report back.

Since the meeting last October, my officials have met representatives of the Law Society of Scotland, the Faculty of Advocates and the Scottish Legal Aid Board. The issue that caused most concern to members, of course, was the reference in the regulations to advocates' fees, which are subject to the late-payment directive. As I said in October, it is our view that advocates' fees are covered by the terms of the European Union directive on combating late payment in commercial transactions. We have a statutory duty to ensure that the regulations that we introduce implement that directive fully and properly. It is our belief that the payment of fees by a client to an advocate is a commercial transaction under the terms of the directive.

The regulations amend the Late Payment of Commercial Debts (Interest) Act 1998, which uses the term "contract". We believe that it was necessary to make it clear in the regulations that advocates' fees come within the amended late-payment legislation, which is why the regulations will add a section 2A to the 1998 act. I understand that the Faculty of Advocates believes that we will be right to do so in order correctly to implement the EU directive. The Law Society of Scotland does not accept our view, but it has not said anything that leads the Executive to reconsider the terms of the regulations on fees and it welcomes the rest of the regulations and the rights that they give to businesses. I think that that point was made in our discussion in October; I will return to it.

I want to deal with another issue that relates to Scottish legal aid payments. Concern was expressed that considerable Executive expenditure might be involved, but I assure the committee that that will not be the case. The Executive and the Scottish Legal Aid Board believe that payments by the board fall outside the late-payment legislation because there is no contractual or commercial relationship between the board and solicitors or advocates. The board has a statutory duty to pay solicitors and counsel for legal aid that is provided to assisted people.

I understand that the Faculty of Advocates and the Law Society are still considering that issue, but it would ultimately be for the courts to determine whether the legislation applies in any particular case or relationship. In any event, the committee might wish to note that the sums that are involved are likely to be relatively small. The board already pays more than 95 per cent of its accounts within 30 days, which is the normal commercial payment period, and is working to improve payment procedures further and to make payments on account as a case progresses through the legal system. Therefore, even if the matter were to be tested in court and it was found that the legislation applied, the financial impact would be relatively small for the Executive.

The third main issue that I took from the meeting in October concerned the relationship between the advocate, the solicitor and the client—views on that matter were strongly expressed. I said then, and restate now, that the Executive does not seek to change or influence the nature of that relationship.

As with all businesses that are now subject to late-payment legislation, there will be a review of working practices, which will lead to arrangements that are compatible with the legislation. The ultimate aim of the legislation is to reduce late payment; I hope that that will happen with advocates' fees, as with any other commercial transaction. I understand that the Law Society and the Faculty of Advocates is, in the light of the regulations, examining the current agreement for accounting for counsel's fees.

The introduction of any new legislation will lead to questions about how it will operate in practice. I know that the Law Society has practical queries as well as substantive legal questions and I have asked my officials to continue their discussions with the Law Society and to offer advice. However, it is not appropriate that discussions with Executive officials should take the place of independent legal advice; therefore, work is being done so that the arrangements are compatible with the new legal position.

I reiterate that we believe that we have correctly carried out our responsibility to transpose the European late-payment directive. We have had a series of useful meetings with the Law Society and the Faculty of Advocates, and I am confident that those will lead to greater understanding of the practical implications of the regulations. As far as the regulations' wider application to the business community is concerned, the inquiries that we have received suggest that business has welcomed and is exploiting them, as we would have hoped.

Thank you. Would you like to introduce your officials?

I am sorry—I should have done so beforehand. That is remiss of me. Andrew McConnell and Alastair Clyde are here to support me.

I thank the minister for returning to the committee. You were, at the time of the original discussion, good enough to indicate that you would come back. I am certainly interested to hear the outcome of the discussions that have taken place and I wonder whether the Law Society of Scotland said what its concerns were. Were those concerns about the nature of the relationship between solicitor and client and the relationship between solicitor and advocate?

The Law Society has a number of concerns about the way in which the system works. One of my colleagues—who have been involved more directly in the discussions with the Law Society—will comment on that. My understanding is that the Law Society would have preferred us not to add section 2A to the Late Payment of Commercial Debts (Interest) Act 1998 and to test the impact of the legislation in court. When we had the discussion in October, it seemed to me that there was concern—I remember that Mr Quinan talked about this—that we should avoid that course of action and that we should not have legislation that will inevitably be tested in court. We are in a bit of a perverse position, because as we go ahead, the legislation will be tested in court.

In a sense, the Law Society's position is practical in terms of the discussions that it is having with the Faculty of Advocates about working relationships. The discussions focus on payment schemes, because it is possible for the regulations not to apply if a properly constituted payment scheme with redress is in place as part of the relationship. The position is practical in that sense, and those discussions are being progressed. The Law Society's position is that one legal principle can be resolved in discussion and the other would have to be tested through legal process.

I really cannot speak for the Law Society of Scotland on its position. We explained what our obligations were in relation to the directive and how we believed that we had met those obligations, and the Law Society explained the practical difficulties that the regulations cause in relation to its agreement with the Faculty of Advocates. In terms of substantive law, we more or less have an agreement to differ. We will give the Law Society any further assistance that we can on the regulations.

We have clarified some areas. There was concern about from whom the late payment of the debt would be due. Our understanding is that the debt is due from the client to the advocate. Again, a court might ultimately resolve that matter, but our understanding is that the client rather than the solicitor would be caught. I think that the Law Society's view was that the solicitor might be caught like a piggy in the middle, although I am not in a position to speak for the society. Our understanding is that that would not be the case.

I want to clarify for the record whether the committee received from either the Law Society of Scotland or the Faculty of Advocates any representations or comments post 8 October 2002.

We have received none.

I have declared that I have an interest and I have not discussed the matter with anyone. When the Executive took representations and heard that the client, rather than the solicitor, was responsible to the advocate, did the Faculty of Advocates express a view?

My understanding is that the Faculty of Advocates agrees with us that the debt is due from the client to the advocate, but I cannot speak for it, either.

I am a little surprised, but the world might have moved on.

You might wish to clarify that matter with the Faculty of Advocates. I will be happy to deal with any concerns that you might have in correspondence. My understanding is that at least on that point the Faculty of Advocates, the Law Society of Scotland and the Executive were in agreement.

My understanding has always been that I was due such money from the solicitor, that it was his responsibility to pay me and that I had no relationship with the client in terms of money. I can see why the Law Society could be a bit twitchy about the legislation. On the other hand, I can see why I would not be in the least bit twitchy about it—there is a vested interest.

As a practising solicitor, I can say that my understanding is entirely the same as Gordon Jackson's. For the reason that he mentions, instructing solicitors are always extremely careful to know whether funds are available before they employ the services of an advocate.

Is that not because of the terms of the Law Society's agreement with the Faculty of Advocates?

No, it is because of ethical professional practice, as a solicitor could be both professionally and personally liable if there were any default.

Part of the answer relates to the discussions that we understand are taking place between the Faculty of Advocates and the Law Society. Our understanding is that most of the payments take place under the 2002 scheme for accounting for and recovering counsel's fees, which is an agreement between the Faculty of Advocates and the Law Society. Those two organisations are discussing any implications that late payments might have on the scheme and whether it needs to be altered to take account of that. I imagine that the protection of the client's interests would be part of that discussion.

Are you still twitchy, Gordon?

No. I am simply conscious of the incestuous nature of the discussion. I have never understood myself to have any relationship with the end user at all. I have always worked on the basis that lawyers' relationships were with one another and that the client was the solicitor's problem. I could be wrong, but that is the way in which Annabel Goldie and every other lawyer whom I know operates.

I raised the issue for the reasons that Gordon Jackson and Annabel Goldie have mentioned. I also wanted to probe the nature of the relationship, because I was also concerned about the relationship that exists in other jurisdictions. The barrister's contract in England, Wales and Northern Ireland is not included in the directive; there, the relationship between client and solicitor is not seen as a contract in the same way as it is here. I still do not quite understand why we have chosen to add a section to the Late Payment of Commercial Debts (Interest) Act 1998.

Further to what Gordon Jackson said, I was also under the impression that the relationship between advocate, solicitor and client was coloured by the fact that advocates are officers of the court, which prevents them from entering into a contract with the client.

I am pleased that the minister has come back and I accept what he says about the on-going negotiations and the fact that it might be that the situation will be settled in court. If that is what the Faculty of Advocates and the Law Society seek to do, so be it. However, I maintain that we find ourselves in this situation partly because the Subordinate Legislation Committee—when the instrument came before it—did not compare the legislation for England and Wales bill with that for Scotland, which would have made it obvious that there was to be an additional section. Had that been done, the matter could have been dealt with at that stage and would not have had to come before this committee.

However, having received no further representations from the Law Society, I am happy to go along with what the minister has said this morning because I believe that there might be court action once the relationship between the Faculty of Advocates and the Law Society is finally defined. That is a sad situation because it is never particularly admirable when law must be tested in court, but so be it.

Annabel Goldie, the deputy convener, wrote to the Procedures Committee on the point that Lloyd Quinan makes about the need for the Subordinate Legislation Committee to be made aware of additional information, but I do not think that we have had a reply yet. The Procedures Committee will, no doubt, take the matter up at some stage.

The point of particular concern to the committee when I wrote that letter was the way in which the time scale for the statutory instrument procedure worked. Mr Quinan lodged his motion in a proper and competent way but, in so doing, he placed the committee and the minister in an almost impossible position. If the minister had not been scheduled to meet the committee that morning anyway, it is difficult to see how he might have been able to alter his timetable to meet the committee. However, in terms of the procedure, the committee was obliged to consider Mr Quinan's motion and it would have been difficult to do that without intervention or input from the minister. That procedural point was at the nub of the referral to the Procedures Committee.

I hope that we will get a reply from the Procedures Committee in the next couple of months.

I am not defending anyone, but I do not think that the matter could have been dealt with by the Subordinate Legislation Committee because it is a policy decision; it is not really to do with the detail of the drafting of the instrument, which is what the Subordinate Legislation Committee tends to deal with. I suspect that the Subordinate Legislation Committee would simply have referred the matter back to this committee anyway.

The time scale is, however, a huge problem, particularly for the Subordinate Legislation Committee. I keep telling the Executive that, but it might be that the time scale causes it a problem as well.

We have to recognise that there are different views on the legal position, but I reassure the committee that the practical implications are being discussed at some length by the Faculty of Advocates and the Law Society. It might be that the other question is tested in court at some point—that is always a possibility.

I thank the minister and his officials for their attendance.

Meeting closed at 11:50.