Scottish Government prescribes new guidelines on time bar
The issue of prescription has long been an important factor in professional negligence claims. That being said, the issue of when a claim is time barred has often been a minefield for both Pursuers' and Defenders' agents. Some recent Supreme Court judgements have provided some well-needed clarity on the subject, with the Scottish Government to provide further certainty in the form of the Prescription (Scotland) Bill.
Summary of Current legislation
At present, negative prescription of claims in Scotland is governed by the Prescription and Limitation (Scotland) Act 1973. Under section 6(1) of that Act, an obligation to make reparation is extinguished through the operation of prescription if a claim has not been made within five years of the relevant obligation having become enforceable. S. 11(1) provides that an obligation to make reparation for loss, injury or damage caused by an act, neglect or default shall be regarded for the purposes of section 6… as having become enforceable on the date when the loss injury or damage occurred, however s.11(3) allows for that date to be postponed until such time as the Creditor/ Pursuer first became, or could with reasonable diligence have become aware of its loss.
The provision raises several questions, including: 'what constitutes 'reasonable diligence' and 'what constitutes a loss'? These questions- and others- have been the subject of debate in the Supreme Court, most recently in the cases of David T Morrison & Co Limited v ICL Plastics Limited and Others  UKSC 48 and Gordon and others, as the Trustees of the Inter Vivos Trust of the late William Strathdee Gordon v Campbell Riddell Breeze Paterson LLP  UKSC 75.
Supreme Court judgements
In theICL Plastics case, an explosion occurred at ICL’s factory in Glasgow in May 2004. Morrison’s shop was among a number of properties damaged by the explosion. Proceedings were raised in August 2009. Morrison sought to argue that it was unlikely that they could have investigated the cause of the explosion prior to August 2004 (the beginning of the running of the 5-year period on the basis of the date upon which proceedings were raised). With regards the date of the damage, ICL argued before the Lord Ordinary that the principle of res ipso loquitor applied; 'the thing speaks for itself'. They were successful in that argument, however, on appeal to the Inner House that decision was overturned. ICL Plastics successfully appealed to the Supreme Court. It was held that s.11(3) was concerned with latent damage and the wording of that provision does not have the effect of postponing the running of time until the creditor was aware that the loss had been caused by a breach of duty. In short, the running of the five-year period is triggered by the creditor's knowledge that a loss has occurred; the creditor need not know that the loss was caused by the negligence of another party.
Clearly the ICL Plastics case was welcomed by defenders of professional negligence actions. No longer could pursuers seek to postpone the running of the prescriptive period until such date as they became aware that the loss was caused by negligence, which could often take months or years to come to light.
The next judgement referred to, Gordon's Trustees was also somewhat of a triumph for defenders. In that case the trustees, as owners of three fields, instructed a firm of solicitors, Campbell Riddell Breeze Paterson LLP, with regards notices to quit. The solicitors were instructed in 2003 with the notices to quit due to be effective from 10 November 2005. The notices to quit were defective and the tenants refused to give up permission of the fields on 10 November 2005. On that same day, Campbell Riddell Breeze Paterson LLP wrote to the trustees advising that they were withdrawing from acting. The trustees then proceeded to instruct a new firm of solicitors and incurred material expense in doing so. On 24 July 2008, the Scottish Land Court gave judgment, which refused to give effect to the notices to quit. Proceedings were raised on 17 May 2012.
At first instance, the Lord Ordinary held that the claim had prescribed. The trustees unsuccessfully appealed that decision to the Inner House. Upon further appeal to the Supreme Court, the trustees' appeal was unanimously dismissed. The issues before the Supreme Court were narrow: does s.11(3) starts the prescriptive clock when the creditor is aware that he or she has spent money (e.g. on a professional advisor) but does not know that that expenditure will be ineffective? The court answered that question in the affirmative and held that:
"On an objective assessment, the trustees suffered loss on 10 November 2005 when they did not obtain vacant possession. At that moment, the prescriptive period began to run under s11(1) unless it could be postponed by s11(3). There was no postponement under s11(3) because the trustees were aware that they had suffered detriment when they did not obtain vacant possession on 10 November 2005. In any event, they were actually or constructively aware that they had incurred legal expenses to obtain such possession by 17 February 2006. The trustees did not begin proceedings until 17 May 2012. It follows that the respondents’ obligation to make reparation had by that time prescribed."
This judgement was helpful from the defender's point of view; the clock starts running from the date at which the claimant 'suffers detriment', or, at the latest, the point at which the claimant incurs legal expenses. The court's views are particularly helpful in the defender of lenders' claims against solicitors. Commercial lenders, where a borrower has defaulted, will often instruct solicitors with regards repossession of the property. Arguably, therefore, that is the date from which the five-year prescriptive period starts running. In practice, the lender claimant will seek to argue that the clock in fact starts ticking from the date upon which the property was actually resold and their losses crystallised. This argument is yet to be tested in the Scottish courts.
At the time of issuing of the Gordon's Trustees case, the issue of prescription was already live within the Scottish Government in the form of the Prescription (Scotland) Bill, which proposes to amend the 1973 Act. S.5 (4) and s.5(5) of the Bill will replace the existing discoverability formula for determining the knowledge which a pursuer must have before the prescriptive period begins to run. Those subsections were specifically introduced to address the issues raised in the ICL Plastics case and provide that the five-year prescription period does not begin to run until the date when the creditor became aware, or could reasonably have been expected to become aware:
(a) that loss, injury or damage has occurred;
(b) that the loss, injury or damage was caused by a person’s act or omission; and
(c) the identity of that person.
Although the Bill's Explanatory Notes state that the new provisions were introduced to combat the effect of the ICL Plastics case, which they state ' brought forward the start of the five-year prescriptive period in a manner that has been perceived to be detrimental to a fair balancing of the interests of creditor and debtor", we are sure that professional indemnity Insurers and their agents alike would argue that the new provisions tip the scales heavily in favour of the creditor. Not only does the Pursuer have to be aware that their loss was caused by an act or omission (negligence), they now have to be aware of the identity of the person or company that caused that act or omission. Arguably, in complex construction cases, for example, where here are many parties involved, the process of identifying the responsible party could take years.
It remains to be seen the effect the new provisions will have in terms of the defence of professional negligence claims, but at the moment, it would certainly be advisable for professional indemnity insurers to make the most of the existing law.
For more information please contact Alanah McGinley, Solicitor +44 141 228 8475 Alanah.McGinley@dwf.law
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.