Time Bar Troubles!

Regular readers of our blog will know that in recent years Scots law has had some struggles dealing with the issue of when claims ought to be time barred. 

The position is set out in an Act of Parliament called the Prescription and Limitation (Scotland) Act 1973. Of particular significance is section 6 of that act which provides that certain types of claim are subject to “short negative prescription”. What that means in practice is that if an obligation has existed for five years without a claim being made (that will often involve a court action having to be raised) or a “relevant acknowledgement” by the debtor of the claim (that is often more than just the debtor admitting some type of liability) the obligation is extinguished and can no longer be enforced.

So far so good. However, the difficulty is that often someone might not be aware of the fact that they have a claim or have suffered loss until the five year period is up.

Section 11 (3) provides that if a party was not aware, or “could not with reasonable diligence have been aware that loss, injury or damage… Had occurred” the five years will only start ticking when they became aware (or could with reasonable diligence have become so aware).

In a case of ICL Plastics Limited the UK Supreme Court effectively decided that such postponement of the prescriptive period was only possible when “damage was latent”. In other words where such as in ICL there had been an explosion although one might not have been aware of exact claims, it was clear that a loss had been suffered and therefore the five year clock began to tick immediately. 

The Supreme Court gave their decision in a case called The Trustees of Gordon v Campbell Riddell Breeze Paterson LLP earlier this month. This was a professional negligence case relating to allegedly ineffective Notices to Quit being served in relation to an agricultural tenancy. 

The court action had been commenced by the trustees against the solicitors in May 2012 on the basis that they failed to identify the correct tenant and lease in the 2004 Notices to Quit. The trustees sued for, amongst other things, the costs of instructing other solicitors to go to the Land Court in an attempt to obtain vacant possession and for damages in relation to not being able to develop the land. The defence was simply that the tenant had failed to remove from the fields in November 2005 therefore trustees effectively had knowledge of loss at that point in time; and so by 2012 the claim was timebarred. It was argued for the trustees that the five year period did not begin until the Scottish Land Court issued its decision. The trustees argued that that date in July 2008 was the first time they knew they had suffered loss. 

At first instance the court held that given material expense had been incurred by the trustees by the time February 2006 came about, then the clock had started ticking by then, and the five year prescriptive period had come and gone before the action was raised in May 2012. The Inner House agreed and in turn the Supreme Court, in a judgement delivered by Lord Hodge, also agreed that the claim had prescribed.

Lord Hodge concluded:

“The creditor does not have to know that he or she has a head of loss. It is sufficient that a creditor is aware that he or she has not obtained something which the creditor had sought or that he or she has incurred expenditure [for the prescriptive period to begin].”

The court acknowledged that this might appear to be harsh on creditors. However Lord Hodge did observe that the Scottish Law Commission have made further recommendations and it may be that reform does follow that effectively ensures that a creditor must be aware that a loss has been suffered and it has been caused by someone’s act or omission (and the identity of that person) before the prescriptive period begins. The Scottish Government apparently intend to bring forward legislation to reform the law of prescription so the position may well change in early course.

For the time being it is more important than ever that parties who have suffered loss do not delay in obtaining legal advice – delay may mean that claims are lost!

Eric Baijal is BBM’s Head of Litigation.