There is no inherent right to charge a client interest on anything until a bill has been delivered. The simplest and cleanest way is to deliver a disbursement–only bill with the standard wording at the bottom:
“We will charge interest on unpaid bills at the rate payable on judgment debts, from one month after delivery of our bill. This rate is currently 8% per annum in accordance with Article 5 of the Solicitors (Non-Contentious Business) Remuneration Order 2009”.
Article 5 reads as follows:
“5 (1) A solicitor may charge interest on the unpaid amount of his costs plus any paid disbursements and value added tax, subject to the remainder of this article.
(2) Where an entitlement to interest arises under paragraph (1), and subject to any agreement made between a solicitor and client, the period for which interest may be charged runs from one month after the date of delivery of a bill.
(3) Subject to any agreement made between a solicitor and client, the rate of interest must not exceed the rate for the time being payable on a judgment debt.
(4) Interest charged under this article must be calculated, where applicable, by reference to –
(a) the amount specified in a determination of costs by the Law Society under schedule 1A to the Solicitors Act 1974;
(b) the amount ascertained on taxation if an application has been made for the bill to be taxed.”
The right to charge interest in relation to disbursements applies only to paid disbursements, and although the Article does not say so, it must be implied from that that interest only runs from the date of payment of the disbursement and not any earlier date, even if a statute bill under the Solicitors Act 1974, including disbursements, has been delivered to the client.
Article 5(2) in any event provides that the period for which interest may be charged runs from one month after the date of delivery of a bill, reflecting the client’s absolute right to assessment under the Solicitors Act 1974 if application is made within one month of the delivery of a statute bill. In the absence of any specific agreement with the client, a solicitor can charge interest on disbursements from the date of payment of the disbursement, or one month from the delivery of a statute bill under the Solicitors Act 1974, whichever is later.
Article 5(3) provides that subject to any agreement made between a solicitor and a client, the rate of interest must not exceed the rate for the time being payable on judgment debts, which is 8%, a high rate compared with market interest rates at present.
Article 5(4) is out of date in that the correct term is now assessment and not taxation, and the Law Society now has no ability to determine a bill of costs. All that Article 5(4) does is to determine, where appropriate, the capital sum on which interest may be charged. The only relevant part is Article 5(4)(b), in that interest can only be charged on the amount allowed by the Senior Courts Costs Office on detailed assessment, following an application under the Solicitors Act 1974 by the client. As is seen from the wording of the Article, all of this is “subject to any agreement made between a solicitor and client”, save for the provisions concerning a detailed assessment, where there cannot be any opt-out.
Thus, in theory, the parties may agree a rate of above 8% in the retainer. However, as set out above, 8% is already higher than can be earned in interest anywhere. Any court would find any higher rate unreasonable under the Solicitors Act 1974 and would disallow such sum; indeed, it could void the whole retainer, meaning that the client would have to pay nothing at all. Quite separately, the court could find the retainer unfair if the client was not fully aware of the high rate of interest and the fact that this is an unusual charge, which a court would inevitably find to be the case.
My simple advice is do not go there. 8% is a high rate anyway and you do not need to specify this in the retainer, as, in the absence of anything in the retainer, the rate of interest is governed by Article 5(3), and is 8%. Of course, in advance of any potential dispute, a solicitor may explain to the client that if they do not pay up, interest will be charged at 8% on the disbursements.
As to the time from when interest runs, again I am satisfied that any court is likely to hold that a retainer which allows interest to be charged before a solicitor has paid the disbursement is likely to be both unfair and unreasonable under the Solicitors Act 1974. I can see a possible exception, and that is where there is a contractual obligation to pay interest to the person providing the service for which the disbursement is being paid, as in those circumstances the client would simply be indemnifying the solicitor.
That leaves the issue of whether it is worth varying Article 5 to have an agreement whereby, for example, the client is liable for interest running from when the disbursement is paid if that is earlier than one month from the delivery of a Solicitors Act 1974 bill.
It would need to be set out in detail in the retainer, and the solicitor would have to draw the client’s attention to the fact that it is an expense that they are unlikely to recover from the other side and that it is unusual in nature. The place for this would be in a conditional fee agreement (CFA), or the service level agreement or whatever, but in the same place as the hourly rates and general charging information.
My advice is simply to deliver a disbursement-only bill as and when disbursements are incurred, but not to insist on payment while the client is co-operating. However, if the client fails to co-operate, then you can charge interest at 8% from one month after the delivery of a bill, or the payment of the disbursement, whichever is later. You do not need to explain any of this in a client care letter, CFA or service level agreement or whatever.
In Part 2, I consider circumstances concerning charging interest on disbursements from a defendant at the successful conclusion to a case and where the claimant is funded by a third party.
