In Scotland, the main time limit for bringing a breach of contract or negligence claim is the five-year 'negative prescription' period. How that five year period applies is a highly nuanced and fact sensitive question and the case of A.C Morrison & Richards LLP v George Souter, considers when a loss is incurred in order to start the clock running.
A belated counterclaim
Law firm A.C Morrison & Richards LLP ("the Firm"), raised a claim against its former client, Mr Souter, for non-payment of its fees and, as is so often the case, Mr Souter counterclaimed alleging professional negligence against the Firm.
Souter claimed that he had received negligent advice regarding a boundary issue on his land in 2006 and 2010. The ultimate consequence of that advice was, allegedly, that Mr Souter had an application to transfer ownership of his land rejected by the Land Register.
That rejection forced Mr Souter to raise proceedings with the Lands Tribunal to prove title to this land and, while that action was successful, Mr Souter incurred irrecoverable legal fees of over £45,000. It was those fees which Mr Souter sought to recover as damages from the Firm.
Prescription and contingent loss
The main problem Mr Souter had was that he did not raise his counterclaim against the Firm until July 2022. Since the five year prescriptive period in Scotland runs from the day on which both injury (in this case a breach of contract) and damage occurred, Mr Souter had to persuade the court that his loss was incurred after July 2017, however the rejection letter from the Land Register was received on 25 November 2015.
Mr Souter sought to get around this by arguing that, in November 2015, his loss was still 'contingent', i.e. it had not yet happened and may or may not do so in the future. In support of this, he claimed that he did not incur the legal fees for his Lands Tribunal claim until his solicitors had issued their fee note on 4 January 2018.
Inevitable loss is 'suffered' loss
The court found in favour of the Firm and dismissed Mr Souter's counterclaim as time barred.
The sheriff referred to numerous cases which had established that, where loss is inevitable, as a matter of law, in almost all cases, it will have already occurred.
In this case the first consequence of the allegedly negligent advice was the rejection of Mr Souter's application to the Land Register, on 25 November 2015. That rejection constituted a 'state of detriment' caused by the breach of contract and established the objective existence of a loss.
Although when Mr Souter received his rejection letter he was not in a position to determine what loss he had actually suffered or its extent, the fact of loss was actual, therefore the time limit began to run. Moreover, on raising proceedings with the Lands Tribunal, it was inevitable that Mr Souter would incur a liability for legal costs. That liability was not contingent on the solicitors issuing their fee note to him at some later date.
Distinguishing unquantifiable loss from truly contingent loss
This case is perhaps unusual in that Mr Souter did not make any attempt to rely on his lack of knowledge of a loss having been suffered or argue that he had been induced into not bringing a claim earlier by the conduct of the Firm, both of which can, in certain circumstances, suspend or postpone the five year time limit. See Tilbury Douglas Construction Ltd v Arup & Partners Scotland Ltd for consideration of both those lines of defence.
The sheriff distinguished C&L Mair v Mike Dewar Farm Systems Ltd, which also considered when a loss is suffered for the purposes of prescription, despite Mr Souter placing a good deal of reliance on it. In that case, the defender had negligently installed a slurry tank which was later damaged in a landslip. Despite the pursuer having incurred construction expense based on the negligent advice and received a slurry tank which was subject to an increased risk of damage, the loss was found not to have been suffered until the landslip occurred.
The difference between Mr Souter's position and that of C&L Mair is that the landslip may or may not have occurred at some point in the future, whereas, once the Land Register had rejected Mr Souter's application, it was inevitable that he would incur expense rectifying that situation. C&L Mair's loss was therefore truly contingent, in that it may never have happened at all, whereas Mr Souter's was merely unquantifiable.
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