Bar Council response to Directive 2011/7/EU on Combating Late Payment in Commercial Transactions

Transcription

1 Bar Council response to Directive 2011/7/EU on Combating Late Payment in Commercial Transactions 1. The General Council of the Bar of England and Wales (the Bar Council) welcomes the opportunity to respond to the Department for Business Innovation and Skills consultation paper entitled Directive 2011/7/EU on Combating Late Payment in Commercial Transactions: Consultation The Bar Council is the governing body and the Approved Regulator for all barristers in England and Wales. It represents and, through the independent Bar Standards Board (BSB), regulates over 15,000 barristers in self employed and employed practice. Its principal objectives are to ensure access to justice on terms that are fair to the public and practitioners; to represent the Bar as a modern and forward looking profession which seeks to maintain and improve the quality and standard of high quality specialist advocacy and advisory services to all clients, based upon the highest standards of ethics, equality and diversity; and to work for the efficient and cost effective administration of justice. Overview 3. The late payment of debts is a significant issue for the Bar. As a primarily selfemployed profession that has traditionally worked on an honorarium basis, barristers have specific difficulties recovering payments for services. The Bar Council therefore welcomes the transposition of the EU Directive as its wider terminology of commercial transactions encompasses work undertaken by barristers on a traditional, as well as a contractual, basis. 4. While forthcoming changes to the Code of Conduct will make it easier for barristers to contract with solicitors and others seeking to instruct them, the publically funded Bar largely work without a contractual relationship with the Legal Services Commission (LSC) and other government bodies who instruct counsel. The current legislation, the Late Payment of Commercial Debts (Interest) Act 1998, only encompasses contractual arrangements, thus excluding barristers who undertake work on the traditional non-contractual basis. 5. The new Directive, however, applies to all payments made as remuneration for commercial transactions, with commercial transactions defined as all instances where there is delivery of goods or the provision of services for remuneration. 2 This means that 1 Department for Business Innovation and Skills, 2012, Directive 2011/7/EU on Combating Late Payment in Commercial Transactions: Consultation. 2 Directive 2011/7/EU, Articles 1(2) and 2(1). 1

2 barristers working on a non-contractual basis, including those providing an essential frontline public service in the justice system of England and Wales, will be entitled to enforce 30 calendar day payment periods and seek interest on late payments. 6. The Directive s extension of scope also remedies the unwelcome disparity created by the Late Payment of Commercial Debts (Interest) Act 1998, section 2A. Section 2A expressly brings the Scottish Faculty of Advocates within the bounds of the legislation, and empowers them to claim interest payments from the Scottish Legal Aid Board something currently denied to barristers in England and Wales. 7. Ultimately, the extension of the Directive reflects the Government s commitment to supporting small businesses and self-employed persons to enforce prompt payment for services. The Bar Council supports this wholeheartedly. 8. While strictly outside the scope of this consultation, there are two further points that should be considered in the implementation of the Directive ensuring the Directive is effective, and looking at what contractual terms are unfair to creditors. 9. The Directive cannot oblige a creditor to claim interest. This, however, means that creditors cannot, in any court proceedings, recover interest unless pleaded. This is despite the fact many small businesses are self-representing and may be unaware of their entitlement to recover interest. Amending the Civil Procedure Rules (CPR), and relevant legislation, 3 to require a judge to apply interest at the statutory enhanced rate to all claims for business debts whether pleaded or not, unless there is a compelling reason or it would be unjust, would be a simple way to provide the Directive with practical force without compelling the creditor to claim interest. 10. In relation to the second point, the Directive clearly establishes that where a contractual term or practice grossly deviates from good commercial practice and is contrary to good faith and fair dealing, it is unfair to the creditor. 4 The Government should exercise its discretion under the Directive to develop an initiative that supports businesses to challenge unfair contractual terms and commercial practice. 5 For example, while the historical practice whereby a barrister was not paid until the case ended was justifiable where they were not taxed until the money was received, this practice is much harder, if not impossible, to excuse under the modern tax regime. 11. In light of the comments made with regard to the CPR, we have sent a copy of this response to Lord Dyson, Master of the Rolls, as Head of Civil Justice and the Civil Procedure Rule Committee. Question 1 (Article 4 para b) Should UK public sector payment terms involving healthcare or where the public authority carries out economic activities of an industrial or commercial nature by offering goods or services on the market, be extended beyond 30 calendar days to up to 60 days? Government 3 For example, Senior Courts Act 1981 (1981 c 54) s 35A, and County Courts Act 1984 (1984 c 28) s Directive 2011/7/EU, Preamble Directive 2011/7/EU, Article 8(4). 2

3 feels that adopting this measure would be a retrograde step, and would significantly weaken current UK practice of paying within 30 days. 12. Payment terms should not be extended to 60 calendar days. Ensuring payment with 30 calendar days better reflects the Government s commitment to best practice in meeting the requirements of commercial transactions. Question 2 To transpose (implement) the Directive should we repeal the existing Late Payment of Commercial Debts (Interest) Act 1998 and replace it with secondary legislation (statutory instruments) or amend the Late Payment of Commercial Debts (Interest) Act 1998? 13. The Bar Council has no strong views as to which procedural course is adopted (primary or secondary legislation). We are not aware, however, of any fundamental concerns with regard to the drafting of the existing Late Payment of Commercial Debts (Interest) Act 1998 and believe that it provides a good framework for implementing the Directive with minimal disruption. Moreover, amending that Act, rather than repealing it and replacing it with secondary legislation, has the added benefit that the instrument would then be subject to proper Parliamentary scrutiny and debate, and may increase public awareness of its provisions. Question 3 Compensation for recovery costs (Article 6): The current Late Payment of Commercial Debts (Interest) Act 1998, suggests a fixed charge of 40, 70 or 100 depending on the size of the debt (under 1,000, under 10,000, and higher) as compensation for recovering costs. The revised directive propose a creditor is entitled to obtain from the debtor, as a minimum, a fixed sum of 40, as compensation for recovery costs, plus additional costs incurred. Should the three tiered approach be retained or changed to a minimum compensation? 14. As the consultation paper states, the UK is an exemplar across Member States in taking steps to address late payment of commercial transactions. 6 The tiered charges provide some small compensation for claims at levels where legal costs are rarely recoverable in full. It may reasonably be supposed that the Directive has set the fixed charge at a lower level as a compromise between competing national interests. That does not invalidate the UK s existing and better provision. By leaving the UK s superior provision in place, it will hopefully promote a race to the top rather than a race to the bottom. Question 4 (Article 12 para 4) If the Directive is transposed (implemented) on 16 March 2013, our proposal is to exclude contracts concluded before 16 March 2013 from being subject to the Directive, given the changes introduced are not sufficiently substantive to warrant retrospective application and that retrospective application will incur a costly process of contract review is this the correct choice? 15. The Bar Council believes that the focus should be on actions commenced after implementation rather than contracts concluded before implementation. The issue to be addressed is dilatory payment. Since under the Directive the statutory interest is implied 6 Department for Business Innovation and Skills, 2012, Directive 2011/7/EU on Combating Late Payment in Commercial Transactions: Consultation, 3. 3

4 into all qualifying transactions, this does not entail retrospective tampering with concluded contracts. 7 Question 5 An Impact Assessment is shown at Annex 3 of the consultation document that also includes a number of questions that we would be grateful for you to answer: Question IA Q1 Do you have any further evidence about problems created by late payments, particularly where this potentially impacts on business survival/insolvency? 16. Financial concerns have a significant impact on the retention of barristers in selfemployed practise. In research commissioned by the Bar Council, financial factors are cited as the most common factor causing people to leave the profession or change their practising status from self-employed to employed In 2011, 63% of barristers leaving self-employed practice highlighted at least one financial factor that influenced their decision to leave. Of the 63% of leavers who said their decision was motivated by at least one financial factor, the most common factors were uncertainty over future levels of income (48%), level of income (44%) and the non-payment of fees (30%). 9 Moreover, the number of people influenced by financial concerns has steadily increased since Financial concerns also have a bigger impact on women, BME and publically funded practitioners. The above financial factors were cited more by women (66%) than men (59%) and to an even greater extent amongst BME leavers (77%) than white leavers (61%). 11 Those working in publically funded areas of the Bar were also more likely to mention financial factors as a reason to leave (mentioned by 70% in publically funded work compared with 49% in not publically funded work). 12 Question IA Q2 Do you have any further evidence about the incidence or magnitude of write-offs associated with late payment debts?... Question IA Q3 Do you have any further evidence about the incidence of firms chasing late payments outside of existing legislation? 19. As noted above, the Bar faces particular difficulties with late payments where work has been undertaken on traditional terms of work. As there is no enforceable contractual relationship, barristers who are owed payments currently use the withdrawal of credit 7 Directive 2011/7/EU, Articles 3 and 4. 8 Electoral Reform Research, General Council of the Bar Exit Survey 2011 (2011), 38. Available at: 9 Ibid, Ibid, Ibid, Ibid, 38. 4

5 scheme operated by the Bar Council. This is provided for by Annex G1 of the Code of Conduct The Bar Council employs five people in Fees Collection to administer the withdrawal of credit scheme. Each year they receive between one and two thousand complaints from barristers in respect of solicitors who have failed to pay barristers fees. In 2011, 2,315 unpaid fee notes were complained about, representing 5.2 million. The value of complaints between January 2010 and March 2012 amounted to approximately 13 million. Bar Council October 2012 For further information please contact Sarah-Jane Bennett, Remuneration and Policy Officer The General Council of the Bar of England and Wales High Holborn, London WC1V 7HZ Direct line: The Code of Conduct is available on the Bar Standards Board website: 5