Risk: Tick tock, stop (or start) the clock

One area of law that can strike fear into the hearts of litigation lawyers more than any other is prescription, and the short negative prescription in particular.

The Prescription (Scotland) Act 2018 received Royal Assent on 18 December 2018. It came into force on 1 June 2022. Was the passage of time ironic? Who knows. Are we any clearer on the law on prescription and how it operates than we were on 31 May 2022? Again, who knows.

Before the 2018 Act came into force the advice, from a risk management point of view, was always to litigate as soon as possible. If you have a number of possible dates for prescription, go with the earliest, rather than trying to argue the point later when it may be too late.

Has that advice changed since the 2018 Act? No. And that is where the certainty ends.

The other SNP

The short negative prescription extinguishes an obligation on a wrongdoer to pay damages to someone who has incurred a loss as a result of that wrongdoing. Easy. What is complicated about that?

Leaving aside what might be called the saving provisions, for claims arising from contract, property damage in delict and professional negligence in delict causing non-personal injury loss, a five year period applies. If you miss this deadline, the claim prescribes. Again, easy.

Tick tock

So what is all the fuss about? All we are being asked to do is work out when the obligation is extinguished. To do that, we need to start at the beginning. When does prescription start to run? And here we come to the first hurdle.

When a client is looking for a concise answer to the question “Has my claim prescribed?”, they will often be disappointed. The answer is usually, “I don’t know”, or “It depends”, or in some cases “I hope not.”

There are usually arguments to be had about when the prescriptive period starts to run. There are also arguments to be had about whether certain periods of time should be considered as part of the computation of the period.

Pre-1 June 2022

From the coming into force of the Prescription and Limitation (Scotland) Act 1973 until the Supreme Court’s decision in David T Morrison & Co Ltd v ICL Plastics Ltd (2014) most lawyers probably thought they had a pretty good understanding of the law of what s 6 of the Act (the extinction of obligations under the five year prescriptive period) was all about, and how it interacted with s 11(3). (There had been consistent Scottish authority allowing pursuers to rely on s 11(3) to assert that the prescriptive period started running when they became aware that the loss was caused by fault on the part of the defender.) Schedule 1, the list of obligations affected by the five year prescriptive period, was also read with knowing nods of understanding.

That changed when the Supreme Court issued its decision in ICL Plastics, which held that the prescriptive period started when the pursuer became aware they had suffered a loss. Hot on its heels was the Supreme Court’s decision on the same point in Gordon’s Trs v Campbell Riddell Breeze Paterson 2017 SLT 1287, and before we knew it, it felt like the law of prescription had been turned on its head. All of a sudden, people were talking about s 6(4) (claimant induced into error by defender and into refraining from bringing a claim), when s 11(3) was looking less like the saviour it had been to many.

In the (pre-1 June) 2022 decision of the First Division in Glasgow City Council v VFS Financial Services, the Lord President said at para 3: “The focus in the present actions on s 6(4) may have arisen as a consequence of recent clarification of the limits to the use of s 11(3) to extend prescriptive periods because of a lack of awareness of objective facts on the part of the creditor (WPH Developments v Young & Gault 2021 SLT 905, following David T Morrison v ICL Plastics 2014 SC (UKSC) 222, and Gordon’s Trs v Campbell Riddell Breeze Paterson 2017 SLT 1287). The limits, which were defined in these cases, are largely removed by the introduction of s 11(3A) of the 1973 Act, and associated amendments, by
s 5 of the Prescription (Scotland) Act 2018. These changes are, somewhat surprisingly, not yet in force. The Scottish Law Commission’s Report on Prescription (SLC No 247), which was published on 3 July 2017, made recommendations on commencement provisions (paras 1.30 et seq). The Scottish Government’s Consultation on Commencement Regulations closed on 14 October 2020.”

Prior to 1 June 2022, knowledge of loss (actual or implied with reference to what could have been found out with reasonable diligence) was the trigger for the clock to start ticking.

Lest anyone thinks that we can forget about what went on before 1 June 2022, nothing could be further from the truth. The most recent decision from the Court of Session is the Outer House in Tilbury Douglas Construction v Ove Arup & Partners Scotland [2023] CSOH 53, which followed a preliminary proof restricted to the issue of prescription. Prima facie, the obligation to make reparation had been extinguished. The pursuer relied on both s 11(3) and s 6(4). The defender’s plea of prescription was repelled and the court found that the pursuer could rely on s 6(4). The case has been appealed. The arguments continue.

On or after 1 June 2022

For relevant obligations prescribing on or after 1 June 2022, to start the clock ticking the claimant must have knowledge (actual or implied) of the following:

1. the loss;
2. that the loss was caused by a person’s
   act or omission; and
3. the identity of that person.

The meaning of loss

So, considering when the clock should start to tick, when the loss occurred is all important. What then is the meaning of “loss”? There has been a lot of case law on the point. Lord Hodge explained in Gordon’s Trustees that it does not matter whether the claimant “is aware actually or constructively that he or she has suffered a detriment in the sense that something has gone awry… It is sufficient that a [claimant] is aware that he or she has not obtained something which the [claimant] has sought or that he or she has incurred expenditure” (emphasis added).

Can we interrupt the clock ticking?

We often see claimants arguing that certain periods of time should not be counted as part of the computation of the five year period.

The prescriptive period can be prevented from running in a number of situations. These can be (but are not limited to): (1) fraud or inducement (on the part of the wrongdoer) which has led to the claimant refraining from litigating; (2) relevant acknowledgment or part performance towards implement of the obligation; or (3) arguably, whether loss was “inevitable”.

We now see claimants relying on s 6(4) in a way they never did before.

Can we make time stand still?

No, not really (unlike in England), but we can now extend the period.

Before 1 June 2022, s 13 prevented parties contracting out of prescription. It was a matter of competency and the court could take the point even if the parties did not.

Now, thanks to the 2018 Act, the creditor and debtor in an obligation to which a prescriptive period under s 6 or s 8A applies may agree to extend the prescriptive period in relation to the obligation concerned.

The prescriptive period may be extended by agreement only:

1. after the period has commenced (and before it would, but for the 2018 Act, expire);
2. by a period of no more than one year; and
3. on one occasion in relation to the same obligation.

Easy? Perhaps, but of course you must first have established when the prescriptive period commenced… From a risk management view, then, what are the top tips?

Probably the top tip is to try not to get yourself into a position where prescription is an issue in the first place! However, if you find yourself with a concern as to whether a claim will prescribe, be aware of the following:

• Know which legislation applies to your case: are you still dealing with the original 1973 Act or do the amendments effected by the 2018 Act apply? The transitional provisions between the old and new versions of the 1973 Act are provided for in the Prescription (Scotland) Act 2018 (Commencement, Saving and Transitional Provisions) Regulations 2022. Regulation 3 provides that the amended 1973 Act will have no effect on rights and obligations which were extinguished by 1 June 2022. This means that if a claim has prescribed and cannot be saved by any of the relief mechanisms in the original 1973 Act as at 1 June 2022, the amendments enacted by the 2018 Act cannot assist in rescuing that claim.
• If the claim is in danger of prescribing, can you reach an agreement under the amended s 13 to extend the period of prescription? If so, make sure you record this in detail. Make sure you have agreement on the date prescription started and the date it will finish, taking into account the agreed extension.
• Keep regular diary entries for the end of the prescriptive period. Even if you are negotiating a resolution to the claim, or an extension of the prescriptive period, do not lose sight of the date the claim will prescribe. You should leave yourself enough time to raise an action if you have to.
• Crucially, only service (and calling) of the court action will interrupt prescription. It is not enough to have warranted a writ or signeted a summons.
• Remember that an agreed extension only applies to the parties to the agreement; the extension will not apply to any other creditors or debtors who are not party to the agreement.
• Make sure you have your client’s clear instructions to serve court proceedings in good time. If the client does not want to go to the expense of raising an action to prevent the claim prescribing (for example if it is looking likely that an agreement to extend the period will be reached), make sure you advise them in writing that they cannot raise their claim if it has prescribed.
• Lockton has produced a guide to Prescription in Contract and Breach of Duty Cases, and it’s worth reviewing the guide when thinking about when the prescriptive period will be considered to have begun.

If you do have a concern, don’t leave it too long. If you think you have an issue with prescription, and you are uncertain about the legal position, don’t delay in tackling the issue. One thing that is certain is prescription does not get better with time.