Round-up on the time limits for making claims in Scotland

The law on time limits in Scotland applies to all claims where the underlying obligations are governed by Scots law, such as Scottish contracts or the negligent breach of Scottish obligations, irrespective of where the claim is litigated. However each case turns on its own facts and so case-specific advice should always be obtained.

The relevant Scottish provisions are set out in the Prescription and Limitation (Scotland) Act 1973 (the Act). Limitation in Scotland functions in a similar way to the equivalent rule in English law by placing a procedural bar on bringing further claims, but in Scotland, limitation applies only to personal injury claims, which are subject to three year limitation. Such claims are beyond the scope of this article. All other claims are subject to the law of negative prescription, which operates to completely extinguish an obligation following a fixed time limit (the prescriptive period).

Length of Prescriptive Period

Most claims in Scots law prescribe after five years, including claims for professional negligence, breach of contract, unjustified enrichment and payment of interest. There are certain other categories of claim to which specific periods apply (eg product liability, defamation (libel) and harassment). There is no distinction for prescription purposes between claims made under statute, contract or delict (the Scots equivalent of tort) as in England.

It is uncertain whether the parties to a dispute can validly agree to dis-apply or extend the prescriptive period because section 13 of the Act appears to prohibit doing so and there is no settled case law on the subject. ’Standstill agreements’ should therefore not be relied on as the Courts could be entitled to disregard them. However, there can be a contractual shortening of a liability period and so professionals should be aware of the risk of facing additional exposure where other parties to an agreement may have preferential terms. Otherwise, there is no statutory provision whereby the Court may allow a claim subject to prescription to be brought out of time (as can happen in relation to personal injury claims) because prescription operates to extinguish the right altogether. However, under certain circumstances, the prescriptive period may be extended or suspended by the Act’s provisions.

The prescriptive period can only be interrupted in certain ways, the most certain of which is the raising of court proceedings. Other methods are the acknowledgement of a claim (and in Scotland, this does not include engagement in a voluntary pre-action protocol), arbitration and certain procedural steps concerned with insolvency or the enforcement of court judgments. The effect of interrupting prescription is that an entirely new period begins, irrespective of how much of the original prescriptive period remained at the date of interruption.

It is unusual to come across it in practice, but where the usual prescriptive period has been interrupted, extended or suspended, there is an additional long-stop of 20 years under section 7 (with a similar property-specific provision under section 8) of the Act which automatically extinguishes any right that would entitle a claim to be made after 20 years from the date the obligation became enforceable. In the case of a claim for damages, that is the date when the loss, injury or damage first occurred regardless of any awareness of such loss, injury or damage and irrespective of any previous suspensions or interruptions of the prescriptive period. So as a usual longstop, a designer would be liable on a design and construction contract for 20 years after a loss occurring as a result of a breach. If the loss was latent and became apparent after 16 years, the claimant would have to interrupt the period within four years (rather than the usual five).

Section 8A of the Act can confer ’extra time’ – though not to the original claimant - in circumstances where more than one person is to blame. This is because a party found liable for losses has two years from decree (judgement) passing against them to seek recovery from a co-obligant before their right of relief will be lost.

When does the prescriptive period start?

The prescriptive period typically runs from the day on which loss, injury or damage first occurred. However, section 11(3) of the 1973 Act provides that the prescriptive period will not begin until the claimant is aware or could with reasonable diligence have become so aware that loss, injury or damage has occurred. Until recently, it was widely thought that the prescriptive period ran only when claimants in negligence or breach of contract cases were, or ought reasonably to have been, aware of:

• a loss; and
• that it was as a result of fault; although
• not necessarily the identity of the wrongdoer or the exact amount of loss.
  

However, the recent decision of the Supreme Court in David T Morrison & Co Limited v ICL Plastics [2014] UKSC48 was based upon a different interpretation. The case arose from the explosion of the ICL Plastics factory in Glasgow on 11 May 2004. The owners of a neighbouring shop sought compensation for extensive damage to their premises. The claimants argued that the five year period started only when they became aware that there had been fault on someone’s part. However, the Supreme Court disagreed and held that the period started when the claimants became aware they had incurred a loss, i.e. the date of the explosion. The right to claim damages from ICL had therefore forever been extinguished prior to the raising of the action more than five years later and the case was dismissed.

In Scotland the prescriptive period therefore runs from the date that the claimant became aware or could with reasonable diligence have become aware of having sustained a loss - irrespective of whether they were aware of any fault or negligence. It should be noted however, that in cases where the loss suffered is purely economic, it may be possible to argue for a later start date on the basis that the claimant was only aware of a contingent loss which has in fact not yet occurred. There is no body of post-ICL Plastics case law as yet and therefore the landscape will be subject to change.

Practical considerations

• Claimants must investigate the basis for any claim (including possible fault and the identity of wrongdoers) and raise relevant proceedings against the correct parties within five years of awareness of any actual loss.
• There are likely to be a number of existing and prospective claims where previous legal advice on prescription might now be considered wrong in light of the ICL Plastics decision. In the short term at least, claimants who now lose a right of claim at an earlier date might well fail to establish negligence on the part of any prior legal advisers given the decision departed from what was thought to be a judicially settled interpretation of the 1973 Act.
• The Supreme Court recognised that the law on prescription in Scotland is in need of reform and indeed the Scottish Law Commission made recommendations for reform in 1989. However in reality, any legislative reform is unlikely to happen soon or be retrospective in effect.
  

Worked examples

1. A developer constructs a warehouse and then discovers the roof is leaking after the period for making good defects under the construction contract. At first there is doubt as to the cause, with blame eventually resting on the architect. Previously, it would have been argued the five year period only commenced once it could have been known the architect was at fault. Now the five year period will run from the date the developer became aware of the leak and so there would be a significantly shorter period to investigate than previously thought.
   
2. A lender is unaware that the value of a property it has lent against was overvalued by a surveyor and the borrower continues to make regular payments. The borrower then defaults, the property is repossessed and valued for sale and a loss is crystallised. The five year period runs from the date when the lender was, or could with reasonable diligence have been, aware of the loss it incurred. That is probably the date of the valuation for sale. In that case, the lender’s awareness of loss and awareness of negligence are likely to coincide and so the start of the prescriptive period is likely to be unaffected by the ICL Plastics decision.

For further information please get in touch with your usual Brodies contact or one of the individuals listed below.