The project involved the conversion of a former hospital into residential flats and a day centre. The pursuer engaged the first defender as contractor to carry out the re-development and the second defender was the structural engineer. The pursuer blamed both for defects in the work. The architect and clerk of works for the project were also brought into the dispute as third parties (because the contractor was seeking contributions from the engineer, architect and clerk of work on the basis of their failure to inspect and supervise the contractor's work).

The pursuer claimed that defects were discovered when reports on the condition of the building were obtained some time after refurbishment had been carried out. It sought damages of £3,000,000 to cover costs of repairing the defects, loss of rental income and other associated costs. The case called for a debate (an initial hearing to look at legal issues before any evidence had been led) to hear arguments about whether or not the claims had prescribed.

Arguments that the claim had prescribed

The engineer, architect and clerk of works argued that the pursuer's claim (and the contractor's claims for contribution) had prescribed. They said that the appropriate time for the prescriptive period to start was when the pursuer had paid the contractor on the basis of certificates by the architects. The time period had started then because the pursuer knew that it had incurred expenditure at that point in time and that expenditure was a loss because of the redevelopment works were defective. That payment was made more than five years before the proceedings were raised.

The point at which a pursuer who is seeking damages knows, or should have known, that they have suffered a loss is a trigger for starting a prescriptive period under section 11(3) of the 1973 Act. The argument that knowledge of incurring of expenditure was sufficient to mean that the pursuer had knowledge of suffering a loss followed the decision in Midlothian Council v Raeburn Drilling and Geotechnical Limited and another [2019] CSOH 29 and the Supreme Court's decision in Gordon's Trustees v Campbell Riddell Breeze Patterson LLP 2017 SLT 1287.

Arguments against prescription

The pursuer argued that the Gordon's Trustees case was not authority for the proposition that prescription ran from the date when an employer paid for construction work and the Midlothian Council decision was incorrect. It also said the Midlothian Council decision could be distinguished from the present case on the basis of differences in the factual situation.

In addition it employed an argument which was not used in the Midlothian Council case. It claimed that a large amount of time should not be counted towards the prescriptive period because the pursuer had not raised the claim earlier due to them acting under error. This argument comes from section 6(4) of the 1973 Act.

Section 6(4) provides that time periods where a pursuer is induced to refrain from raising proceedings because of an error induced by words or conduct of the defender (or someone acting on their behalf) should not count towards a prescriptive period. However periods where the creditor could, with reasonable diligence, have discovered the error are not excluded and the prescription clock will continue to run for these.

The pursuer said that it was led into error by the conduct of the engineer. The engineer had inspection obligations and also obligations to advise the architect prior to the architect issuing certificates which triggered the pursuer making payment to the contractor. The pursuer understood from the issue of the certificates that the contractor was entitled to payment because the work had been done properly. It was claimed that, if the engineer had carried out its obligations properly, the architect would not have issued the certificates. The pursuer did not raise court proceedings because it was not aware there was anything wrong with the redevelopment works as a result of it being led into error. It could not have been aware of the error until the reports, which identified the latent defects, were obtained.

The result

The argument that the Midlothian Council decision was incorrect was not successful. However the judge was satisfied that the written arguments put forward against the claim having prescribed said enough to entitle the pursuer to be able to argue their case at a hearing with evidence in support of it.

Comments

Findings that a pursuer has started the prescription clock running by making a payment for work even although they are not aware until later there was a problem can seem harsh on pursuers, particularly in latent damages claims. The application of section 6(4) may, in certain circumstances, allow for some mitigation. However it must be remembered that questions of prescription will turn on the facts and circumstances of each case.