Guidance issued by the Law Society's rules and ethics committee
Standard monthly payments from the Legal Services Commission and tailored fixed fees
The Legal Services Commission (LSC) is introducing a method of calculating standard monthly payments made to solicitors under the civil legal aid contracting arrangements. The LSC is consulting on a system of fixed fees for such cases (see its Web site at: www.legalservices.gov.uk/civil/docs_for_consultation/civil.asp#tff).
The proposal is that fixed fees will become mandatory from
1 April 2005, but solicitors have been able to sign up to the new arrangements voluntarily since
1 October 2004. For solicitors joining voluntarily, the fixed fee regime will be backdated for claims submitted on or after
1 April 2004.
Solicitors will still be required to record the actual fees and disbursements incurred on the consolidated matter report form (CMRF) as they do now. The fixed fee (which includes disbursements) may be higher or lower than the amount recorded on the CMRF.
Solicitors' Accounts Rules 1998
Rule 21(2) of the Solicitors' Accounts Rules 1998 (SAR) continues to apply to standard monthly payments. These payments are office money and must be placed in an office account at a bank or building society branch (or head office) in England and Wales.
(Some solicitors may, however, be placing such payments in a client account under the interim guidance - see: www.lawsociety. org.uk:80/professional/conduct/guidance.law - which remains an option until 30 April 2005.)
Rule 32 of the SAR requires the keeping of accurate accounting records for each client. In particular, rules 32(1)(c) and (4) of the SAR require all dealings with office money relating to any client matter to be recorded on the office side of the appropriate client ledger account (as well as in the office cash account), even if client money is not held in respect of the client. If a solicitor is paid by the LSC on a fixed-fee basis, the solicitor's accounting records for the client must show the amount received on the completion of each case (that is to say, the fixed fee). This may differ from the amount recorded on the CMRF.
The proposal to backdate claims to 1 April 2004 means that correcting entries will be necessary in the accounting records to reflect discrepancies between the amounts already recorded on the monthly CMRFs and the fixed fees actually received. The best method of making the correcting entries will depend on the accounting system in use and solicitors may wish to discuss this with their accounts staff and accountants.
The backdating of claims may lead to some solicitors having to make a substantial number of correcting entries. The Law Society is mindful of the problems this may cause and is content, in these limited circumstances only, for solicitors to make a global adjustment.
It is understood that some solicitors may have continued, from the date of joining the voluntary scheme, to record in their accounting records the actual costs of the particular matter, rather than the fixed fee as required by the SAR. Correcting entries in their books of account will be necessary to regularise the position. Again, in these limited circumstances only, the Law Society is content for solicitors to make a global adjustment.
Disbursements exceeding the tailored fixed fee in a matter
In some cases, a solicitor will receive a fixed fee that is less than the disbursements incurred in the particular matter. The appropriate accounting entries will depend on the accounting system employed by the practice. In essence, it will be necessary to write off the remaining debit balance on the office side of the relevant client ledger against a suitable profit and loss account (nominal ledger) expense code such as 'disbursements not recovered'. It is suggested that solicitors do not write off these sums simply as 'bad debts' as this may lead to complications with the Inland Revenue.
VAT
The new fixed-fee arrangements have been discussed with Customs & Excise. They have confirmed that the fixed fee will replace the amount recorded on the CMRF as the basis for calculating the VAT due. No additional VAT liability will arise where the value on the CMRF exceeds the fixed fee. When the tax point arises is not affected by the new payment arrangements.
Solicitors and The Accident Group
Following guidance issued jointly by the Law Society's standards and compliance boards (see [2004] Gazette, 2 September, 39), practitioners have raised queries concerning the interpretation of that guidance.
The Law Society's rules and ethics committee now issues the following further guidance. It should be noted that the committee does so on the basis of information that has been supplied to it by practitioners, and subject to any contrary view that may in future be taken by the courts. This further guidance is not mandatory, but the Law Society will have regard to it when exercising its regulatory functions. Solicitors may need to be able to demonstrate how they have complied with the rules if they have not followed this further guidance.
Yes. OM5 cases are those TAG cases that were commenced after 19 November 2001 and that were conducted in accordance with TAG's operating manual 5. The test cases considered by the Court of Appeal (and which led to the issuing of the original guidance) were dealt with under TAG's OMs 1-4. The committee, however, considers that the judgment has a bearing on cases brought under OM5, and is not persuaded that there is any material difference between the cases brought under OMs 1-4 and those brought under OM5. In all cases, panel solicitors assumed obligations in respect of the Accident Investigations Limited (AIL) fee which amounted to a 'reward' to the introducer in breach of section 2(3) of the Solicitors' Introduction and Referral Code 1990 (since amended): 'Solicitors must not reward introducers by the payment of commission or otherwise.'
Yes. If the after-the-event insurers refuse to pay, the solicitor should reimburse the client for the AIL fee.
It would be reasonable to defer payment until the end of the case, when the outcome has become clear. It would not be proper to defer payment indefinitely because of, for example, the possibility of further litigation concerning the AIL fee.
Yes. Where a panel solicitor needs to repay the AIL fee to the client, the solicitor should add an element to cover interest in respect of that part of the loan that was referable to the AIL fee. This will regularise the client's position.
Where the solicitor has given an undertaking to do so, the payment may be made directly to the funder.
The original guidance was based on comments made in the Court of Appeal in relation to operation of TAG schemes. This further guidance issued by the Law Society's rules and ethics committee is based on such TAG documentation as was made available to the committee. Solicitors who accepted work under other schemes may need to consider whether the principles outlined by the court, if applied to those schemes, would require similar repayments.
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