The point of having rules allowing for negative prescription is to strike a fair balance between competing interests of a creditor who may wish to bring a claim for damages and the interests of the party to be sued (referred to as a debtor). A debtor should not be prevented from defending a court action because a creditor has delayed, unreasonably, in raising the action to the point where the debtor does not have information about the event the action relates to which would be necessary to support their defence.
The Scottish Law Commission carried out a review of the rules in this area and, following this, the Prescription (Scotland) Bill (the Bill) has recently been introduced into the Scottish Parliament. The Bill sets out various changes to the current rules which are contained in the Prescription and Limitation (Scotland) Act 1973 (the 1973 Act). These are discussed below.
Changes to the five year prescriptive period
The 1973 Act sets out a list of obligations which have a five year negative prescription period. The Bill sets out some changes to the types of obligations covered in this list. It extends the scope of the types of obligations related to contract and delict which are covered. It also changes the approach to obligations to pay or repay something which arise under a statue. The starting position for these is changed to be that they are generally covered by the five year period. However statutory obligations to pay taxes, duties, rates or child maintenance and obligations to make repayments in relation to benefits, income support and tax credits are expressly excluded from the five year period.
The Bill also makes changes rules which govern when the five year period will start to run. The first of these is a clarification about the situation where a creditor has not raised a claim to interrupt the period because of fraud by the debtor or because the creditor was induced into an error by the debtor. It is made clear that it is not necessary for the creditor to have actually decided to raise a claim before the fraud or error occurred.
The second change to the rules about the start of the five year period applies to obligations to pay damages. For this type of obligation section 11(3) of the 1973 Act currently allows for a delay as to when the five year period starts to run based on it being necessary for a creditor to have sufficient knowledge. The Bill changes the requirements about a creditor's knowledge so that the five year period does not start until the creditor knows (or should know) of the following: (a) that loss injury or damage has occurred, (b) that this was caused by another person's act or omission, and (c) the identity of that other person. It does not matter whether or not the creditor is aware that they have a claim which is actually actionable in law. This change is aimed at addressing the position which arose out of the Supreme Court decision in the case of Morrison v ICL Plastics Limited in 2014 regarding what knowledge is necessary.
Changes to the 20 year prescriptive period
Under section 7 of the 1973 Act a 20 year negative prescription period will generally apply to obligations if no other provision is made for them.
It is currently possible to interrupt the 20 year period either by the creditor raising a relevant claim or by a relevant acknowledgement being given by the debtor (as is the case with the five year period). The Bill proposes to change this to make the 20 year period work as long stop period which cannot be interrupted in this way. However, it will still allow the 20 year period to be extended in certain circumstances, for example, where a claim has been raised before the end of the 20 year period but the court action is not yet finally disposed of at the expiry of the 20 year period.
A similar change is made to the provision in the 1973 Act which sets out a 20 year negative prescription period for the prescription of rights relating to property which are unexercised or unenforced. The Bill provides that that this 20 year period will no longer be capable of interruption by raising a relevant claim but, again, it will still be possible for this period to be extended if a claim has been raised before the end of the 20 year period but is not finished when the period ends.
A long stop period of 20 years is also created in relation to obligations to pay damages where, as discussed above, there can be a delay to the start of the five year period. Regardless of when the five year period starts to run, a 20 year long stop period will start on the date of the act or omission (or last date of the act or omission if it was a continuing one) and the obligation to pay damages will expire once this 20 year period is complete.
Other miscellaneous changes
The Bill also proposes sets out some other miscellaneous changes. These include the following:
- Confirmation that the prescriptive periods under the 1973 Act will not apply to obligations arising under an enactment which contains a prescription or limitation period for them.
- The definition of relevant claim is extended to include claims in administration or receivership or acts triggering these.
- Clarification is provided that the effect of a relevant claim being raised is that the interruption to a prescription period will last until the claim is finally disposed of and a fresh prescription period will only start to run at that time. A definition of final disposal is also added.
- Changes are proposed to the prohibition on contracting out of prescription periods to make it possible to agree to extend the five year period (and also a separate two year period which is allowed for in one type of case under the Act). These allow extension on one occasion after the period has started for no more than 1 year. This does not apply to the 20 year period and no other alterations to the prescriptive periods by agreement are competent.
- A new section dealing with the matter of burden of proof is proposed. It provides that, where there is a question about whether an obligation or right has been extinguished by prescription, it is for the creditor to prove the right or obligation has not extinguished.
The Bill is only at the first stage of the procedure. A call for views has been issued by the Finance and Constitution Committee (closing on 30 March) and a call for evidence has been issued by the Delegated Powers and Law Reform committee (with a deadline of Wednesday 4 April). It is therefore possible that there may be some changes to the content of the Bill as it passes through the Scottish Parliament. Regardless of its final form, it is clear that the Bill will make some important changes which those advising on litigation in Scotland will need to consider.