Over the last decade, time bar arguments in Scotland have increased in importance for defenders although a number of grey areas remain. In WPH Developments Limited v Young & Gault LLP [2021] CSIH 39, the Court of Session's Inner House provided important clarification on one of them.
Background
WPH developed a residential project and claimed Young & Gault, the architect, provided negligent advice and plans, resulting in part of the development being built on neighbouring property. The difficulties came to light when the properties were sold and WPH had to reach agreements with the neighbouring landholder and the purchasers.
A court action was served on 21 November 2018 and the key question was when "loss" occurred in terms of Section 11(3) of the Prescription and Limitation (Scotland) Act 1973. For those who chose to read the Inner House decision, just like Mrs Donoghue and the snail in her bottle (Donoghue v Stevenson), the original and appeal hearings took the pursuer's pleadings as if they had been proven, to establish whether they could ever lead to a successful claim. Had WPH "won" here, the matter would have gone back to the sheriff court and WPH would have had to lead evidence to prove its case.
WPH instructed Young & Gault to prepare the precise location of the site's boundaries in October 2012 and in autumn 2013 provided drawings of individual plots for the purposes of dispositions to individual house purchasers. Both sets of drawings were incorrect.
Young & Gault argued that the five-year prescriptive clock started before 21 November 2013 and WPH was therefore out of time. In particular, it argued any wrongdoing began in 2012 when the first set of erroneous drawings were supplied and WPH's loss first happened when it carried out construction works on site at that time, that turned out, in fact, to be on neighbouring land.
WPH argued:
- no loss occurred until 2014 when it needed to purchase extra land and relocate some boundary walls; and
- even if this was wrong, in terms of Section 11(3) of the Act it was not aware nor could it have been aware if acting with reasonable diligence that it had incurred a loss until the boundary issues were raised by the neighbouring landowner in February 2014. This delayed the start of the prescriptive clock.
In a courageous decision the sheriff found in favour of WPH. While he agreed that the loss was incurred prior to 21 November 2013, he considered Midlothian Council v Raeburn Drilling & Geotechnical Limited &Ors was wrongly decided based on a misinterpretation of the Supreme Court's decisions in David T Morrison & Co Limited v ICL Plastics Limited and Gordons Trustees v Campbell Riddell Breeze Paterson. Accordingly, WPH's claim was not time barred. The sheriff sought to separate incurring expenditure with the awareness of that being in fact damnum or a "loss". In his view, section 11(3) defeated Young & Gault's prescription argument as WPH was not aware that its earlier expenditure was in fact wasted, or a loss, until after 21 November 2013.
The Inner House's appeal decision
Lord Malcolm gave the court's decision, with which the two other judges agreed. Importantly, he had been a member of the Inner House which dealt with Gordon's Trustees on appeal before it reached the Supreme Court.
In re-examining the Inner House's previous decision in Gordon's Trustees and the Supreme Court's decisions in Morrison and Gordon's Trustees, Lord Malcolm confirmed that "contemporaneous knowledge of the objective facts which constitute the loss or detriment is sufficient to preclude reliance on [Section 11(3)]".
Therefore, WPH had clearly spent money on construction and other tasks outside its site boundary before 21 November 2013. This was sufficient to constitute the loss and, having clearly made payments consciously, it could not argue that it was not aware of "the objective facts which constitute[d] the loss".
A step forward for prescription-based arguments
This case, which may yet be appealed to the Supreme Court, assists defenders in putting forward arguments based on prescription in Scottish claims. The application of an objective test provides clarity as a defender only needs to demonstrate that there was knowledge of expenditure or other loss. A prescription defence does not need to establish that such a loss or expense was known to be due to a defender's mistake or wrongful act or, for example, that a payment was a loss or wasted expense in nature at all.
This may seem unfair but the Inner House expressly noted the benefits of certainty were set against the interests of some pursuers in hard cases.
Reform
As the court noted, the Prescription (Scotland) Act 2018 will make significant changes to the test currently set out in section 11(3) of the 1973 Act. In very broad terms, in order to rely on a prescription defence, the defender will need to show that not only was a pursuer aware of the loss but also that this loss was a result of an identified potential defender's breach of duty.
A consultation on draft regulations to bring the Act into force concluded in October 2020; there is not yet a timescale for the next steps. In very broad terms, while they may extend some existing claims, the regulations aim to prevent either prescribed claims being resurrected or a claim which has not yet prescribed from doing so as a result of other changes to the Act.
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