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First Report Session 1998-99
Volume 3 - 1st Report - Session 1998-99
LEGAL AID BOARD
Delay in paying a solicitor's accounts
6.1. Mr X, a solicitor, complained about three instances of delay by the area office of the Legal Aid Board (LAB) in querying and paying his accounts. He considered the queries unnecessary and further complained that LAB refused to pay compensation for the delays.
6.2. My investigation began in March 1998 once the Ombudsman had obtained comments from the Chief Executive of LAB after the referral of the complaint by the Member. I have not put into this report every detail investigated by the Ombudsman's staff but I am satisfied that no matter of significance has been overlooked.
Background
6.3. Under section 16(6) of the Legal Aid Act 1988 property recovered with the help of legal aid must be used to help repay the costs incurred by the legal aid fund in the proceedings concerned. That liability is known as the 'statutory charge'. Regulations 105A and 119 of the Civil Legal Aid (General) Regulations 1989 provide that, where an assisted person has a financial interest in the assessment by LAB or taxation by the court of the costs to be met by the fund (such as where the statutory charge applies, or the person has been assessed as liable to make a contribution to the costs), the solicitor must supply that person with a copy of the bill and inform him of his right to make representations on the matter. The solicitor must endorse the bill to the effect that the assisted person has such an interest and has been informed as required.
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6.4. In March 1996 the Treasury issued guidelines for government departments on financial redress in cases of maladministration. The section dealing with compensation arising from delayed payment indicated the need to allow for the time normally taken by proper administrative procedures, adding that compensation would not always be appropriate simply because that time had been exceeded; the test was whether the delay was excessive and unreasonable. It suggested that the appropriate rate for calculating interest would be that used by the Inland Revenue when repaying tax (from January 1997 that rate was 4 per cent, increasing from August 1997 to 4.75 per cent). The guidance added that consideration should be given to the facts of each case, and that higher rates of interest might be appropriate in certain circumstances, for example where the complainant could establish that a payment would have been placed on deposit, or had been forced to borrow as a result of the maladministration. The general approach was to compensate for loss of value or loss of use of the funds.
6.5. Under the terms of their financial memorandum LAB operate a discretionary compensation scheme in accordance with the Treasury guidelines. LAB's internal instructions on the operation of the scheme say that compensation should be paid only when a complainant has suffered actual financial loss as a direct result of maladministration by LAB and the sum involved is of consequence. The instructions suggest that payment of less than £5 to an assisted person or £15 to a solicitor would not normally be justified because of the disproportionately high administrative cost, but make it clear that those figures are for guidance only and that a smaller payment may be made where the circumstances justify it. In the case of late payment of a solicitor's bill, the period of delay attracting compensation should be regarded as beginning on the date on which payment would have been made had matters progressed smoothly, or the relevant target date for payment if that would be later. Any contribution to the delay by the actions of the solicitor should be taken into account and no interest should be paid in respect of periods while further information is awaited. The appropriate rate of interest will depend on the individual circumstances of the case, but the general approach is to pay at a rate comparable to the rate of interest the relevant sum would have earned had it been invested in a bank or building society. The relevant sum is the solicitor's profit costs exclusive of VAT but inclusive of disbursements (other than counsel's fees) plus VAT.
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Investigation
6.6. On 30 July 1997 Mr X wrote to the area office giving details of three claims for payment which he had submitted and on which he considered payment to be overdue (the letter in fact referred to five cases but he later withdrew his complaints in respect of two of those). He said that, unless a reasonable explanation could be given for the delay, he expected to receive interest in respect of those accounts not settled within six weeks of submission. The details of each of those claims are as follows.
Mr A On 30 June 1997 Mr X sent the area office a claim for costs of £530.24, net of VAT, and disbursements of £55.67, supported by taxation certificates from two courts. On 2 August the area office replied asking why he had submitted two certificates in respect of one set of proceedings. On 6 August Mr X replied explaining that Mr A's opponent had begun proceedings in the wrong court, so had had to withdraw those proceedings and begin again in another court. LAB paid the claim on 9 September.
Ms B On 14 May 1997 Mr X sent the area office a claim for costs totalling £827.48, net of VAT, and disbursements of £5.28. On 16 June the area office replied asking whether Ms B had been informed of her right to make representations. On 20 June Mr X replied confirming that Ms B had been so informed. LAB paid the claim on 28 August.
Mrs C On 26 March 1997 Mr X sent the area office a claim for costs totalling £703.85, net of VAT, and disbursements of £77.99. He said that Mrs C was not liable to contribute to her costs and had not recovered property under the certificate; the action to which it related had been putting into effect and enforcing the costs of an order obtained under an earlier certificate (by which property had been recovered). On 25 June the area office replied saying that the statutory charge which applied to the property recovered would include the costs incurred under the later certificate, so Mrs C had a financial interest in the latest bill and should be informed accordingly. On 21 August Mr X replied disputing the area office's view with regard to the statutory charge on the grounds that no property had been recovered under the later certificate, most of the work done having been in connection with the transfer of title of the property and enforcement of maintenance payments and costs due under the earlier order. On 28 August he resubmitted the account. LAB paid the claim on 29 October.
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6.7. On 12 August 1997 the area office replied to Mr X's letter of 30 July. They said that they were unable to deal with accounts immediately on receipt and had no authority to pay interest on delayed payments. They suggested that Mr X make an application for an ex gratia payment, which they would forward to their head office. Following further correspondence, on 2 September Mr X wrote to LAB's head office making a formal complaint and asking for an ex gratia payment for interest in respect of the delays in paying his claims. On 3 October the head office replied apologising for the delays but saying that no compensation would be paid as the delays had not been exceptional and the amount payable in each case would fall below the minimum payment of £15 (paragraph 6.5). On 14 October Mr X wrote to the head office asking what LAB considered to be reasonable delay. On 16 October the head office replied that they did not have a definition of reasonable delay but estimated compensation by deducting their target time for the payment of accounts, which was six to eight weeks, from the time actually taken and then calculating interest on the account at a rate of 5 per cent in respect of any excess period; if the resulting sum exceeded £15 the delay was considered unreasonable. However, they took the period of delay to start only from the time LAB had all the information needed to authorise payment of the account, rather than from the date of its original submission. On those principles, they calculated that in none of the three cases in question did the compensation calculation exceed £15. On 31 October Mr X asked the Member to refer his complaint to the Ombudsman.
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LAB's reply to the complaint
6.8. In his comments to the Ombudsman, the Chief Executive explained that LAB's 1996/97 target for the payment of solicitors' civil legal aid accounts was 75 per cent to be paid within six weeks and 90 per cent within eight weeks. Accounts were first considered by area office staff; once authorised they were passed to LAB's accounts department for payment. Payments were made in twice-monthly batches and accounts would usually be paid approximately two weeks after being processed by the area office. Between March and September 1997 the area office which dealt with Mr X had had a five to six weeks' backlog of accounts waiting to be processed, which had meant that they could not be dealt with immediately on receipt. On 7 August they had written to all local solicitors advising them of the state of account processing at that time. At that point they had introduced a new procedure for dealing with those claims which had been referred back to the solicitor for further information. Until then such accounts, when resubmitted, had again been placed at the back of the queue to be dealt with in date order. Under the new procedure, where the query was a simple one, the account would be fully assessed prior to rejection because of information omitted, and processed the day after receipt of the information required. LAB were considering adopting that system more widely.
6.9. The Chief Executive said that the area office had acted correctly in returning each of the three claims about which Mr X complained. The claim in respect of Mr A had been unusual in that there were accounts from different courts under the same certificate. Neither the claim nor the covering letter had offered any explanation of that and the area office had been obliged to satisfy themselves that the work claimed for was within the scope of the legal aid certificate. The claim in respect of Ms B had been returned as she had an interest in the costs, having paid a contribution towards them, and it had not been clear that the solicitors had fulfilled their obligations under the regulations in that respect (paragraph 6.3). In the case of Mrs C, LAB's position was that the work done under the later certificate had had the effect of enforcing the recovery of property provided for by the earlier order. In that situation they regarded the work done under the earlier and later certificates as being within the same proceedings. The statutory charge which applied to the property recovered therefore included the costs claimed by Mr X on 26 March 1997 under the later certificate, so the area office had been correct in saying that Mrs C had an interest in those costs.
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6.10. Regarding Mr X's claim for compensation, the Chief Executive said that, contrary to the head office's letter to Mr X of 16 October 1997 (paragraph 6.7), LAB's use of a de minimis rule in their compensation scheme was not in itself a test of whether a delay in payment was unreasonable. If the de minimis figure was exceeded that might show that a degree of hardship had been suffered, but the rule was applied only when compensation was in principle due, to see whether any payment should be made; its purpose was to avoid disproportionate administrative cost and the potential offence which the payment of very small sums often caused. He noted that LAB's practice of calculating interest at a 'savers' rate rather than the Inland Revenue rate suggested by the Treasury guidelines (paragraph 6.4) was preferential to complainants. He did not consider the use of 'borrowers' rates to be appropriate simply because a solicitor might have chosen, as a business decision, to operate on an overdraft facility; such a rate would be justified only if the complainant had been forced to borrow by LAB's maladministration. Regarding the delays which had occurred in the cases of which Mr X complained, the Chief Executive said that the fact that processing time exceeded LAB's targets did not automatically lead to financial redress; in his view the overall time taken to process the accounts in respect of Mr A and Ms B had not been so unreasonable that financial redress was the appropriate remedy. In relation to Mrs C, he was unable to explain why a period of three months had elapsed before a query had been raised, or why there had been a delay in processing the account once the query had been answered; he considered the overall delay to be unreasonable and sincerely apologised for that. However, he said that no compensation was payable because the amount due did not exceed the de minimis figure.
6.11. The Chief Executive said that in retrospect LAB's letters to Mr X could have been clearer, and the references to delay and the de minimis rule had given the impression that LAB were avoiding payment. He sincerely apologised for that. He had asked the head office to address the training and supervision needs of the staff concerned and a training programme for all staff dealing with compensation had been arranged.
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Findings
6.12. In putting his complaint to the Ombudsman Mr X explained that he considered LAB's £15 de minimis rule and choice of interest rates for the calculation of compensation to be arbitrary and unfair. He said that solicitors would be expected to pay interest to clients who had suffered loss through delay by the solicitors at the rate allowed on debts recovered in the courts, which was 8 per cent, and would not be allowed to impose a de minimis figure. The approach to financial redress for maladministration which the Ombudsman, like his predecessor, considers correct is that a person who has suffered injustice as a result of maladministration should as far as possible be put back in the position he or she would have been in had the maladministration not occurred. LAB's inclusion of a de minimis rule in their compensation scheme is in strict terms a departure from that principle; however, for the reasons given by the Chief Executive I accept that such a rule is justifiable, provided that the discretion to override it where the circumstances of a particular case so indicate is recognised. Regarding choice of interest rate, I consider LAB's use of a 'savers' rate to be a reasonable starting point, again subject to the condition that a different rate might be appropriate if individual circumstances warrant it. I do not regard the fact that solicitors may be subject to more demanding conditions regarding late payments to clients as relevant; there is no reason why LAB's compensation scheme should look beyond restoring the solicitor to the position in which he would have been had LAB paid the account in good time. I have seen no indication of any special circumstances relating to Mr X's claims for compensation which would justify waiving LAB's de minimis rule or which would make the application of a higher interest rate necessary in order fully to reflect the loss of value or loss of use of the funds concerned. I therefore find no fault with LAB's decision to apply their standard rules to those claims. I make that finding on the understanding that LAB will reconsider the matter in the light of any further representations that Mr X may make regarding the loss he has incurred and any hardship caused by it.
6.13. I turn next to the question of LAB's procedure for deciding what constituted unreasonable delay in respect of the three cases in question. Mr X considered LAB's approach to be unfair, because they had themselves decided that their queries had been necessary and they had suggested that they would calculate delay only from the dates of Mr X's replies to those queries. I accept the principle that any calculation of unreasonable delay should take account of normal processing time for the period in question. I see no basis, either in LAB's internal instructions (paragraph 6.5) or as a matter of principle, for the assertion made by LAB in their letter of 16 October 1997 that the period of delay should run from the time the area office received all the information they needed to authorise payment of the account. In my view if LAB are to allow themselves a normal processing time—and especially if they are to use for that purpose the longer period of eight weeks within which they are expected to process 90 per cent of claims, rather than the six weeks within which 75 per cent should be dealt with—they should be prepared to include in that period the time necessary to resolve routine and straightforward queries. Mr X's objection to the manner in which LAB proposed to settle the question of unreasonable delay in respect of his claims was therefore justified.
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6.14. Applying the principles discussed above to the three claims in question, I find that in the case of Mr A LAB paid the account 71 days after submission, a delay, after allowing eight weeks' processing time, of 15 days. In the case of Ms B they paid the account 106 days after submission, a delay of 50 days. In the light of the straightforward nature of the queries LAB raised on those cases and the speed with which Mr X replied I see no need to make an allowance for them in the calculation of delay. In the light of that, and the Chief Executive's comments (paragraph 6.9), I see no need to consider further the question of their necessity. In the case of Mrs C 64 days elapsed following LAB's query before the account was resubmitted. I consider LAB would be entitled to deduct that period when calculating the delay, provided their query was justified. I have concluded that it was; while I recognise that Mr X took a different view from LAB about whether he had an obligation to inform Mrs C of a financial interest in the bill, and that LAB's payment of the account following Mr X's reply to their query might, given the absence of any further discussion on the point, have suggested acceptance of his view, I do not regard the issue as having been clear-cut. For that reason I find no fault with the area office for having pursued it further. LAB paid the account in Mrs C's case 217 days after submission, a delay of 161 days, reduced to 97 days after deduction of the 64 days attributable to the query.
6.15. I asked the Chief Executive if LAB would calculate the amount of compensation which might be payable to Mr X by applying the 'savers' rates appropriate to the sums concerned to the delays as defined in paragraph 6.14. I accepted that it would be appropriate to pay compensation only in respect of any case where the amount calculated was £15 or more. The Chief Executive replied that having applied an interest rate of 5 per cent to the sums concerned in respect of the delays as I had defined them, each of the amounts calculated was less than £15. He said that he would be happy to reconsider the matter if Mr X could show either that his loss had not been adequately reflected or that there were special circumstances which made the application of the de minimis rule inappropriate. I welcome that.
Conclusion
6.16. There were delays by LAB's area office in dealing with the accounts submitted by Mr X. The Chief Executive has explained the administrative background against which those occurred and the steps taken to improve the situation. He has apologised for the one instance where that background did not adequately account for the length of the delay. LAB's head office's response to Mr X's claim for compensation for the delays was inadequate. The Chief Executive has apologised for that and put in hand remedial training measures. LAB have redetermined the compensation due on Mr X's claim by a process consistent with the Ombudsman's approach to redress for maladministration, the relevant Treasury guidelines and LAB's internal instructions. They have undertaken to reconsider the outcome if Mr X can show that the interest rate used does not adequately reflect his loss or that there are special circumstances which make the application of the de minimis rule inappropriate. I regard that as a suitable response to a justified complaint.
27 August 1998
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