Prescription: when does the clock start to tick for obligations to make reparation?
The Prescription and Limitation (Scotland) Act 1973 (the 1973 Act) contains the rules as to when obligations expire and parties lose the right to raise court actions in Scotland due to the passage of time. It would not be unfair to say that this is a complicated area of law. This article will look at the narrow area of prescription of obligations to make reparation, which are subject to special rules under the 1973 Act, and two decisions from the Supreme Court in this area.
Obligations to make reparation are subject to a five year prescriptive period under the 1973 Act. Both Supreme Court decisions discussed below looked at the question of when the five year period would actually start to run. It is helpful, before considering the cases, to look briefly at the rules in the 1973 Act.
Section 11 of the 1973 Act
Section 11 of the 1973 Act contains three rules to determine when time will start to run on the prescriptive period for obligations to make reparation. These are as follows:
- Firstly, as a general rule, section 11(1) provides that for obligations to make reparation for loss, injury or damage caused by an act, neglect or default time will start to run on the date when the loss, injury or damage occurred as this is the date on which the obligation will become enforceable.
- Section 11(2) provides a rule to cover circumstances where there has been a continuing act, neglect or default and the injured party suffered loss, injury or damage before the end of the act, neglect or default. In those cases the time period will start to run on the date on which the act, neglect or default ceased.
- Lastly, section 11(3) provides a rule to postpone the start of the prescriptive period in circumstances where the injured party was not and could not with reasonable diligence have been aware at the time of the act, neglect or default that they had suffered loss, injury or damage.
It was the third rule which was the focus of the cases discussed below and, in particular, the question of what knowledge it is that a creditor needs to have before the prescriptive period will start to run.
Morrison v ICL Plastics
The decision in David T Morrison & Co Ltd (t/a Gael Home Interiors) v ICL Plastics Ltd was issued in 2014 and was subject to much discussion at the time. In this case the fact that damage had been suffered was evident to the pursuer at the time it occurred because it was caused by an explosion at neighbouring premises which damaged the pursuer's property. The difficulty the pursuer had was that, although they knew that they had suffered damage, they did not what the cause was of the damage or who was responsible until some time after the event.
The pursuer sought to argue that the application of section 11(3) meant that the time period not start to run until they were aware of both (i) that loss, injury or damage had occurred, and (ii) that this had been caused by a breach of a duty owned by them. However, the Supreme Court did not agree with them and held that if the intended interpretation of section 11(3) had been that the prescriptive period will not start to run until there was an awareness of a breach of duty owed in addition to the awareness of the loss, injury or damage suffered, this would have been more clearly stated in the legislation.
A focus of the Supreme Court's judgment was that section 11(3) refers to loss injury or damage "caused as aforesaid". The words "caused as aforesaid" referred to the reference to "loss, injury or damage caused by an act, neglect or default" in section 11(1). They considered that, based on this wording, it was it enough for the creditor to have knowledge only of the occurrence of the loss or damage. The prescriptive period would therefore start to run from the date of the explosion regardless of whether or not the pursuer was aware at that time who was at fault. Since the action was not raised within five years of that date the defender's obligation to make reparation had therefore prescribed.
Gordon v Campbell Riddell Breeze Patterson
In their decision from November 2017 in Gordon and others as Trustees v Campbell Riddell Breeze Paterson LLP the Supreme Court was looking at whether a pursuer must be able to recognise that he has suffered some form of a detriment before the prescriptive period will begin to run.
The pursuers had raised an action against their former solicitors seeking damages for an alleged breach of an implied term in their contract that the solicitors would exercise the degree of knowledge, skill and care expected of a reasonably competent solicitor. It was alleged that the solicitors had breached this by being negligent in relation to the service of notices to terminate tenancies over land owned by the pursuers. The tenants failed to provide vacant possession of the land as required by the notices and a Land Court action was subsequently raised which found that the two of the notices were invalid.
There were three different potential dates for the start of the prescriptive period suggested throughout the course of the case. These were:
- The date when, in terms of the notices, the tenants should have provided vacant possession of the property but failed to do so and when the solicitors wrote to the pursuers to advise of this and that they should instruct new solicitors due to a potential conflict of interest (10 November 2005).
- The date by which it was agreed that the pursuers had incurred material expense in the Land Court proceedings (17 February 2005).
- The date of the Land Court's decision which confirmed that that two of the notices were invalid (24 July 2008).
If either of the first two of these were held to be the date on which the prescriptive period started to run then the claim would have prescribed. If the last was the relevant date (as the trustees argued was the case) then the claim would not have prescribed.
The judge at first instance favoured option two holding that the relevant date was the date by which it was agreed that the trustee knowingly became liable for the legal fees and outlays in seeking to obtain vacant possession of the fields. The pursuers were not successful in their appeal to the Inner House. In the leading opinion Lord Malcom agreed with the Lord Ordinary. Lady Paton agreed with Lord Malcolm but also observed that sufficient knowledge had been gained by the pursuers to start the prescriptive period at the date of receipt of the solicitor's letter which had advised of the tenant's failure to provide vacant possession and that the pursuers should instruct a new solicitor.
The pursuers were also unsuccessful in their appeal to the Supreme Court. The Supreme Court held that, with hindsight, it was clear at the moment when there was a failure to obtain vacant possession of the land that there was a loss to the pursuers and, accordingly, that was the point when the prescriptive period would start. They also found that there was an awareness of loss by the date by which it was agreed that the trustees had incurred material expenses in the possession proceedings. It did not matter if the pursuers thought these expenses might be recoverable, it was an objective assessment which mattered. The pursuers' claim had therefore prescribed by the time the action was raised.
The first point to make when considering the impact of section 11(3) is that the time from which a prescriptive period will start to run will dependent on the facts and circumstances of each case. There may be cases where it is difficult to pinpoint this with certainty if there is a lack of clarity about when a pursuer did, or should have, had the requisite knowledge. The application of an objective assessment when the benefit of hindsight is applied may, in some cases, appear to have a harsh result for a pursuer. Accordingly, the best advice remains that parties should identify the earliest possible date as to when prescription may commence when considering what the deadline will be for bringing court proceedings.
It is worth briefly considering the possibility for reform of the law in this area which may arise out of the draft bill prepared by the Scottish Law Commission as part of its report on prescription published in July 2017. Section 5 of the draft bill proposes to amend section 11(3) to provide that the prescriptive period will start to run when a pursuer is aware that (i) loss, injury or damage has occurred, (ii) the loss, injury or damage was caused by a person's act or omission; and (iii) the identity of that person. The bill has only been published in draft at this stage and has not been introduced into the Scottish Parliament. However, should the amendments proposed be enacted, it would reverse the effect of the decision in Morrison v ICL Plastics and could, in some case, provide pursuers further time before the prescriptive clock starts to tick.