Time Limits for Contingent Loss Claims in Scotland

In a recent Outer House decision, the court clarified that contingent loss is unlikely to trigger the 5-year time limit for raising a broad range of actions for damages, including professional negligence claims.

The leading cases of Gordon's Trustees and Midlothian Council aligned "loss" with expenditure for the purposes of calculating the period for making a claim. Broadly speaking, those cases tell us that where a claimant has incurred expenditure due to a breach of duty, under Scots law, they will typically only have a period of five years from the date of that expenditure to pursue a claim against a wrongdoer.

In C&L Mair v Mike Dewis Farm Systems Ltd, the Court of Session in Scotland considered whether a contingent loss would trigger the five-year period, i.e. a loss which had not yet occurred and which may or may not be suffered in the future. In that case, a slurry tank had been installed to sit on a large area of level ground on a farm in 2011, beyond which was an embankment. A circle slip of the embankment then occurred more than five years later, causing the ground at the base of the tank to move and requiring the tank to be demolished and rebuilt. The question was whether the five-year period had started on the point of expenditure and therefore whether it had expired.

The claimant argued that there was no loss until the landslip occurred as it was not inevitable that there would be a landslip. The defender argued for a strict application of Gordon's Trustees, i.e., that the wasted expenditure was sufficient to trigger the five-year period because the slurry tank eventually failed to achieve its purpose.

The hearing was conducted on the assumption that, while there was a risk of a slip, it was not inevitable. Taking that into account, Lord Braid determined that the loss was purely contingent until the slip did in fact occur; and until then, it could not be said that the claimant had sustained any loss. Therefore, the action had been raised in time.

The court treads a careful path on "inevitability" in the judgment. Lord Braid noted that, in terms of Kennedy v Royal Bank of Scotland, "where loss is inevitable, as a matter of law, in almost all cases, loss will have already occurred"; which suggests that there may be a small category of cases where even future inevitable loss does not amount to loss. It must follow that where loss is contingent on an uncertain future event (or is not inevitable), it has not already occurred.

Ultimately, as his Lordship states in terms, each case will turn on its own facts. Gordon's Trustees allows for the possibility where incurring expenditure may not amount to loss for the purposes of triggering the five-year prescriptive period. For instance, where a potential claimant has suffered no more than a risk of a future loss.

C&L Mair can certainly be appreciated for Lord Braid's efforts to produce a result that most would regard as fair to claimants, but we envisage continuing arguments for defenders based on the principles in Midlothian and the post-Morrison interpretation of prescription. In C&L Mair, for example, the breach of duty might have been to design and install a slurry tank that was vulnerable to that kind of failure in the embankment. On that rationale, if the farmer had been told before the damage occurred that he had a possible problem, he could have viewed the slurry tank as defective. So the question for the court would be whether the slurry tank's installation was defective from the start and, therefore, was the installation cost in itself a "loss"? Defenders would most probably seek to argue that it was.

Parties pursuing claims will remain well-advised to seek early advice on whether and when protective proceedings might need to be raised in order to preserve any potential damages claim. On the other hand, professionals and their insurers will no doubt remain mindful of investigating whether expenditure by a claimant could have triggered the prescriptive period at an early stage and whether a claim might have prescribed as a result (but bearing in mind the additional elements for delaying the five-year period introduced by the Prescription (Scotland) Act from 1 June 2018).