19 February 2021

As is well known, the state of the law of prescription is in flux and has led to a surge in ‘protective’ proceedings. A recent case highlights the potential risk of adopting such a course, when commenced at the expense of agreed dispute resolution mechanisms.

The Fraserburgh Harbour Commissioners v McLaughlin & Harvey Limited [2021] CSOH 8

In 2012, the defender contracted with the pursuer to deepen part of the North Harbour at Fraserburgh. After completion of the works the pursuer identified defects, allegedly arising from the defender’s breach of contract. In what would appear a prudent step, the pursuer issued proceedings with the express intent of avoiding time bar arguments whilst the claim was investigated.

The problem with this approach was that, when contracting, the parties selected a dispute resolution mechanism, whereby adjudication was a mandatory perquisite to referral to a determining tribunal (in this case arbitration). The dispute had not been referred to adjudication and the defender argued this imposed a contractual bar on the action before the court. The court agreed and was minded to dismiss the action.

In this instance, the relevant dispute resolution clause was an NEC3 standard form (clause W2 of the Engineering and Construction Contract (June 2005) (with amendments June 2006)); however, the judgement will apply to all scenarios where there is a mandatory dispute resolution procedure to be followed. The decision is consistent with the approach being adopted in England and Wales (in particular see Anglian Water Services limited v Laing O’Rourke Utilities Limited [2010] EWHC 1529 (TCC)).

In very broad terms, such clauses have not (historically) received any great attention, with the practical implications largely being the difference in speed, expense and privacy between formal court proceedings and private mechanisms. Yet, when set against the background of protective proceedings, there is a real risk that ignoring such mandatory clauses could have significant consequences in terms of time bar.

On one view, this may simply push the ‘prescription problem’ down the line and force pursuers to issue premature adjudications before commencing protective proceedings, be that arbitration or before the court. This may create its own problems, particularly in complex construction cases where extensive and time consuming investigations are often required before any determination is made. Practically, parties facing such a scenario will need to include the length of the adjudication process into any calculation of prescription dates. Going forward, they may also wish to include contractual saving provisions, permitting court actions to be raised where time-bar is imminent.

That said, there would appear a live question as to whether the raising of proceedings in such circumstances would be sufficient to constitute a ‘relevant claim’ for prescription purposes, so resetting the clock (and particularly where the action was not determined to be incompetent). This, in turn, would raise the somewhat unattractive scenario of parties raising doomed proceedings, simply to reset the prescriptive clock. It appears likely the judgment will be appealed and the issue is ripe for further consideration. However, having failed to build in sufficient time to do so here, that must remain a question for another day.

Contact: Matthew Raftery, Associate: mra@bto.co.uk / 0141 221 8012