It has been 11 years since the Supreme Court issued its decision in David T Morrison & Co Limited v ICL Plastics Limited, which has spawned a series of cases altering the way issues of prescription are approached in Scotland. The end result is a complex area of law, which in recent years has often provided more confusion than clarity.
Hopefully, that is about to change. Prescription is making its way back to the Supreme Court after the court gave permission to Tilbury Douglas to appeal the Inner House’s decision in Tilbury Douglas Construction Limited v Ove Arup & Partners Scotland Limited. Both Lord Reed and Lord Hodge, who heard the Morrison case as well as Gordon’s Trustees in 2017, remain on the bench.
The issues to be considered by the Supreme Court in the Tilbury Douglas appeal are the correct interpretations of sections 6(4) and 11(3) of the Prescription and Limitation (Scotland) Act 1973 (“Act”) (as it was prior to amendments made by the Prescription (Scotland) Act 2018). This Law-Now provides a summary of the law as it presently stands and the issues likely to be considered by the Supreme Court.
Background to the law of prescription
In short, the law of prescription requires a pursuer (i.e. claimant) to raise a claim within 5 years (the “prescriptive period”) from (i) a breach of an obligation; and (ii) loss, injury or damage arising from the breach. The complexity arises in ascertaining when the prescriptive period starts and particularly in relation to “saving provisions” under the Act which seek to postpone/pause the prescriptive period. These are found within sections 6(4) and 11(3).
For the purposes of section 11(3), the prescriptive period is postponed until the pursuer becomes aware, or could with reasonable diligence have become aware, of the occurrence of loss caused by the breach of duty. This is when the issue of knowledge arises.
Section 6(4) applies where a pursuer has been induced to refrain from making a claim by reason of error, induced by words or conduct of the defender.
The importance of knowledge
A key focus of recent decisions has been on a party’s knowledge of their loss. Pre-2014, practitioners had operated on the basis that the prescriptive period would not run whilst a pursuer did not know, and could not reasonably have known, that it had a claim. A prime example of this is in respect of latent defects.
However, the Supreme Court in Morrison suggested a different interpretation and said that if a pursuer is aware, or could reasonably have been aware, of having suffered loss, then there would be no postponement of the prescriptive period. The effect of this is that a right of action may prescribe before a pursuer is aware, or could reasonably have been aware, that it had a claim (i.e. if it is unaware that a defender’s negligence or breach has caused the loss in question).
The case of Gordon’s Trustees then took this a step further by saying that wasted expenditure could be a relevant loss. The court in that case made clear that this would be the case even if the pursuer could not have known that the expenditure had been wasted (i.e. because it was unaware of the negligence or breach at the time). In such cases, it would only be with hindsight that the expenditure could be seen to have been wasted, but by that time the right to claim may have already prescribed.
These decisions have resulted in the perception of unfairness in the law as illustrated in the case of Midlothian Council v Blyth & Blyth. The case was in a respect of a new build housing development. The issues surrounded a failure to provide protective measures to prevent gas migrating from abandoned coal mines into the houses. No ground gas defence system was installed and, ultimately, the development had to be demolished. The Council raised its claim within 5 years of the first person becoming sick. However, following the Supreme Court’s rationale, the decision of the Outer House was that paying its construction team amounted to wasted expenditure sufficient to start the prescriptive period. The Council’s claim had therefore prescribed.
Issues arising from the current case law
In practice, a number of difficulties have arisen as a result of the Supreme Court decisions, particularly in the context of construction contracts.
Construction projects are complex. Their design and construction can often take several years and it can take several more years once the works are handed over before latent defects come to light (as was the case in Midlothian).
The issue that this gives rise to is that claims may prescribe (as was the case in Midlothian) before the pursuer is even aware that there is an issue. Although it has not come before the courts, if payment of a party is to be taken as a relevant starting date for the prescriptive period, this raises a question as to whether different start dates for the prescriptive period apply within the supply chain. This leaves open the possibility that a downstream action may prescribe while an upstream action has not or vice versa.
Public policy
Whilst the case law gives rise to interesting legal debates, it is important to remember that prescription is seeking to balance individual interests on the one hand and the public interest on the other i.e. is it fairer to deprive a pursuer of a claim after a certain amount of time than to allow it to trouble a defender? This is connected to issues around evidence and witnesses in order to allow a court to administer justice.
This public policy consideration has also recently come to the fore with the introduction of a 30 year retrospective liability under the Building Safety Act 2022. Whilst the majority of this legislation applies in England, it did introduce a new cause of action in Scotland in respect of past defaults relating to cladding products extending the prescriptive period to 30 years for such claims (back to 1992). However, the legislation does seek to introduce an element of protection for anyone defending a claim in that a court must dismiss an action if it is satisfied that it is necessary to do so to avoid a breach of “Convention Rights” i.e. the right to a fair trial. This feeds back into the points highlighted above in respect of evidence and witnesses. We still need to see how this will operate in practice.
Conclusion
This will be the third time in the last 11 years that section 11(3) has been considered by the UK’s highest court. However, it will be the first time the court has considered the issues in the context of a construction contract. With all the decisions coming out of both the Court of Session and the Supreme Court and the uncertainty they have brought regarding knowledge of loss, wasted expenditure and the application of hindsight, it is hoped that the Supreme Court will take the opportunity to bring much needed clarity to this area of law.
Third time’s the charm…………………hopefully!
References:
David T Morrison & Co Ltd (t/a Gael Home Interiors) v ICL Plastics Ltd & Ors (Scotland) [2014] UKSC 48
Gordon & Ors (Trustees of the Inter Vivos Trust) v Campbell Riddell Breeze Paterson LLP (Scotland) [2017] UKSC 75
Midlothian Council v Blyth & Blyth [2019] CSOH 29
Tilbury Douglas Construction Limited v Ove Arup & Partners Scotland Limited [2024] CSIH15
