In Midlothian Council v Blyth & Blyth & Ors  CSOH 29, the Council sued Blyth & Blyth Consulting Engineers Ltd (along with various other parties) for an alleged failure to advise it to install a ground gas defence system for a social housing development. The properties were ultimately uninhabitable due to gas ingress and were subsequently demolished. The Council raised its action in September 2018 for the costs of demolition and rebuilding.
Lord Doherty held that the Council's claim was brought out of time and his judgment provides some guidance on the application of the decision of the UK Supreme Court in Gordon's Trustees v Campbell Riddell Breeze Paterson LLP 2017 SLT 1287 and its effect upon the Prescription & Limitation (S) Act 1973 which governs the time limits for bringing such claims.
The parties' arguments
A loss becomes actionable when fault and loss coincide in terms of section 11(1) of the Act; but it is settled law that in terms of section 11(3) of the Act, the five year time limit for bringing a claim for breach of contract or negligence in Scotland is delayed until a claimant is aware that they have sustained a loss.
The engineers were said to have been in breach of contract in or around 2006 when negligent advice was given. So when was the Council aware of having sustained a loss? The engineers argued that if the development was "inherently defective", the building costs incurred between December 2007 and June 2009 constituted loss, irrespective of the fact that the Council did not seek to recover those. Therefore on the basis of the Council's own case, the five year period started to run from June 2009 at the latest and any court proceedings should have been raised by June 2014, i.e. more than four years earlier than the action was in fact raised.
In response, although the Council accepted that loss had been sustained in June 2009, it argued that it was not aware, and could not have been aware, that it had suffered any loss until it received the first complaint made by a tenant on September 2013. The action had been raised within five years of that date and so the court should allow it to proceed.
Occurrence and awareness of loss
Lord Doherty observed that this was a claim for financial loss rather than physical damage. The Supreme Court had made it clear in Gordon's Trustees that the court was concerned with the question of loss as an objective fact; and if financial loss takes the form of expenditure, then the prescriptive period will start to run on the date that the expenditure is incurred. Both parties accepted that, with hindsight, the construction expenditure was wasted and did not achieve its purpose because the development had to be demolished. Lord Doherty said that:
"As soon as the pursuer accepted the [engineer's] advice and acted upon it" there was loss. The correct approach was to proceed on the basis that the development was "fated to be defective" due to the alleged breach of contract and that "the expenditure involved in constructing it would be wasted (as proved to be the case)."
The claim had therefore become actionable more than five years prior to the raising of the action.
Lord Doherty then went on to consider whether s.11(3) assisted the Council given Lord Hodge's view of that provision in Gordon's Trustees. He concluded that it did not; pointing out that Gordon's Trustees made clear that s.11(3) is concerned with the pursuer's awareness of loss injury or damages as an objective fact. The start of the prescriptive period is not postponed because a claimant is unaware that anything has gone wrong; that he or she has suffered a detriment; or are unaware that they had not obtained what they had sought. The Council was aware that it had incurred expenditure which, with the benefit of hindsight, was wasted and amounted to loss. As a result the Council was aware that it had suffered loss, injury or damage and the five year period had begun to run at that point.
Impact of decision
The Council suggested that this interpretation would render the provision for delaying the prescriptive period redundant, but Lord Doherty disagreed. Although the ambit of s.11(3) was now much narrower than was previously thought to be the case (before the Supreme Court decisions in David T Morrison v ICL Plastics in July 2014 and Gordon's Trustees in November 2017) there will still be circumstances where the Act operates to postpone the commencement of the prescriptive period.
Importantly Lord Doherty distinguished the expenditure incurred by the Council in reliance upon advice from the kind of (hypothetical) scenario where expenditure might be incurred in exchange for negligent advice. Moreover, Lord Doherty emphasised that the breach of duty must either precede, or be contemporaneous with, the loss and that the loss must be caused by the breach. He suggested that would not be the case where a contractor was merely being paid the contract price.
Further developments are awaited following the Council's successful application for leave to lodge an appeal against the decision.