Risk: Time is of the essence...

The 1 June 2022 was Global Running Day but, despite the apt title of this article, we are not talking about running times. Instead, we mean the more exciting (depending on who you are talking to) topic of prescription, as 1 June 2022 was also the day that the Prescription (Scotland) Act 2018 came into force.

The Act makes major changes to the way some prescriptive periods will be calculated, so solicitors acting in this area should familiarise themselves with the new rules and assess whether they will affect any current litigation.

Overview of the prior law

In Scots law prescription is governed by the Prescription and Limitation (Scotland) Act 1973. By s 6 an obligation to make reparation is extinguished where it has subsisted for a continuous period of five years after the appropriate date without (a) any claim having been made in relation to the obligation, and (b) the subsistence of the obligation having been relevantly acknowledged. The contentious issue is nearly always the appropriate date.

What is the appropriate date?

Until now, s 11(1) of the 1973 Act has provided that an obligation to pay damages arising from a breach of contract or duty “shall be regarded for the purposes of section 6 of this Act as having become enforceable on the date when the loss, injury or damage occurred”. 

When the loss, injury or damage occurred is the critical question. It centres on s 11(3), which states: “In relation to a case where on the date referred to in subsection (1) above… the creditor was not aware, and could not with reasonable diligence have been aware, that loss, injury or damage caused as aforesaid had occurred, the said subsection (1) shall have effect as if for the reference therein to that date there were substituted a reference to the date when the creditor first became, or could with reasonable diligence have become, so aware.”

In David T Morrison & Co v ICL Plastics [2014] UKSC 48, Morrison raised an action against ICL for damage caused to its premises by an explosion at ICL’s factory. The explosion occurred on 11 May 2004. It was not until later – following expert input – that it became apparent that the damage was caused by ICL’s negligence. Court proceedings were issued in August 2009.

ICL submitted the case had prescribed. In response, Morrison argued that s 11(3) postponed the running of prescription until it became aware that the damage was so caused. The Supreme Court rejected this argument and held that awareness of loss is all that is needed to start the prescriptive period, i.e. there is no requirement for the party suffering that loss to be aware of its cause (in this case, the negligence of ICL).

Following Morrison, Gordon’s Trustees v Campbell Riddell Breeze Paterson [2017] UKSC 75 set out further confirmation on the effect
of s 11(3): 

1. it does not postpone the start of the prescriptive period until such time as a pursuer is actually or constructively aware that he has suffered detriment in the sense that “something has gone awry” or “made him poorer or disadvantaged”;
2. “loss, injury or damage” means “physical damage or financial loss as an objective fact”; and
3. knowledge of the incurring of expenditure could amount to awareness of loss for the purpose of s 11(3) if the expenditure ultimately turned out to be wasted. 

The most recent notable case looking at s 11(3) is WPH Developments Ltd v Young & Gault LLP [2021] CSIH 39, in which our firm acted on behalf of the successful defenders/appellants (“Y&G”).

In October 2012, WPH, who were residential property developers, instructed Y&G to provide architectural services in respect of a development site, including the plotting of the precise location of its boundaries. In 2013, Y&G provided WPH with construction drawings which allegedly identified the boundaries incorrectly. WPH, having developed the plot on the basis of the drawings, brought an action for damages against Y&G on 21 November 2018. Y&G argued that WPH’s claim had prescribed by virtue of s 6 of the 1973 Act.

At debate at Glasgow Sheriff Court, Y&G argued that the loss allegedly suffered occurred more than five years before the raising of the proceedings, when WPH began to develop the plot and thus incurred wasted expenditure. Sheriff Reid held that WPH’s claim had not prescribed, as WPH could not have been aware of the occurrence of that loss until around 20 February 2014 when the neighbouring landowner brought the boundary issues to their attention.

On appeal, Y&G successfully argued that Sheriff Reid had erred in understanding the approach to s 11(3). Had he applied s 11(3) in the manner described by the Supreme Court in Gordon’s Trustees, he would have been bound to hold that WPH’s arguments were irrelevant and the claim had prescribed. The appeal was allowed and Y&G were granted absolvitor, bringing the case back into line with Gordon’s Trustees.

The 2018 Act

The Prescription (Scotland) Act 2018 received Royal Assent on 18 December 2018. It makes certain amendments to the 1973 Act. For the purposes of this article, we will be focusing on the following changes which came into force on 1 June 2022:

• the new s 11(3A) – the knowledge test;
• the new s 13 – standstill agreements.

All of the other provisions of the Act will come into force from 28 February 2025.

The 2018 Act will make a number of changes to the rules of negative prescription, addressing certain issues which have caused or may cause difficulty in practice. It is clear that there has been a significant shift in the law following the Supreme Court judgments discussed above and the 2018 Act seeks to remedy this, but it remains to be seen to what extent this will be achieved. It appears a rebalancing is to be introduced together with a number of other steps. 

Section 11(3A): the knowledge test

The amended s 11(3) of the 1973 Act reads: “In relation to a case where on the date referred to in subsection (1) above… the creditor was not aware, and could not with reasonable diligence have been aware, of each of the facts mentioned in subsection (3A), the said subsection (1) shall have effect as if for the reference therein to that date there were substituted a reference to the date when the creditor first became, or could with reasonable diligence have become, so aware.”

It is followed by two new subsections: 

“(3A) The facts referred to in subsection (3) are – 

(a) that loss, injury or damage has occurred, 

(b) that the loss, injury or damage was caused by a person’s act or omission, and 

(c) the identity of that person.

“(3B) It does not matter for the purposes of subsections (3) and (3A) whether the creditor is aware that the act or omission that caused the loss, injury or damage is actionable in law.”

The most obvious change from the 1973 Act is that individuals must now be able to identify the person that caused the loss. This is a significant shift from the previous test and will undoubtedly lead to a later date for the start of the five-year period.

It will be interesting to see how the new test plays out in litigation in years to come. When we apply the new knowledge test to the case of ICL Plastics, it is likely that the case would not have been held to have prescribed. However, if we apply the same test to WPH Developments, then, in our view, the claim would still have prescribed given that the pursuer (the developer) was fully aware that the defender (architect) had plotted the boundaries.

The date of 1 June 2022 is very important. In general terms, if a claim prescribes on or before 31 May 2022 due to the previous knowledge test under s 11(3), the change makes no difference. The right to pursue a claim is lost. However, if a claim was due to time-bar on or after 1 June 2022, it will benefit from the new provision under the 2018 Act. This is a significant point for solicitors to note, given that in relation to those particular cases the five-year period will be extended, and solicitors would be well advised to check whether any of their current cases might be affected.

Section 13: standstill agreements

Unlike our peers south of the border, standstill agreements have not been allowed in Scotland, due to s 13 of the 1973 Act. That has all changed, given that from 1 June 2022, standstill agreements will be enforceable under the 2018 Act. These agreements, however, can only be entered into:

(a) after the prescriptive period has commenced and before it expires;

(b) for a maximum of one year;

(c) once for the same obligation.

The introduction of standstill agreements will be welcomed by many, as they allow parties to negotiate an end to their dispute without the need for litigation. Defenders, however, will need to take careful consideration and appropriate legal advice before entering into any standstill agreement, given the effect it will have on any potential prescription defence.

Further thoughts

It remains to be seen how the 2018 Act will play out in practice and we will need to keep a close eye on litigation that follows. It will be interesting to see how the court approaches the new knowledge test, as we are sure defenders will seek to challenge steps taken by pursuers before confirming they have full knowledge of the facts referred to in s 11(3A) of the amended 1973 Act. The case law for many years has certainly benefited defenders advancing a prescription defence, but the 2018 Act is rebalancing the odds with prescription in favour of pursuers. It is clear that each part of the knowledge test is likely to be the subject of litigation for many years to come.