10 May 2019

In Scotland there are certain time limits in which actions must be raised. Those limits are set out in the Prescription and Limitation (Scotland) Act 1973 which provides, amongst other things, that obligations to make reparation for breach of contract extinguish five years after the pursuer is aware they have suffered loss, injury or damage.

For decades, it was generally accepted that until someone was aware that something had gone wrong (or could have discovered that something had gone wrong), the clock did not start to tick. That understanding was disabused in two recent Supreme Court cases in which the court held that knowledge of loss was something to be determined objectively, with the benefit of hindsight.

This issue was recently considered in the context of a construction claim in the case of Midlothian Council v Bracewell Stirling Architects & Others 2019 CSOH 29.

The case concerned a housing development constructed between 2007 and 2009. The pursuer argued that on the basis of allegedly flawed advice provided by the 4th Defender between 2004 and 2006, the development was constructed in 2009 without any ground gas defence system. On 7 September 2013, one of the tenants fell ill and investigations revealed gas within some of the houses. The tenants were evacuated and the development demolished. 

The Council raised proceedings against the 4th Defender on 4 September 2018 seeking damages of around £12m arising, in part, from the need to demolish. 

The issue for the Court was when the Council became aware of its loss. 

The Council accepted it was aware of expenditure in constructing the development at the time it was incurred, but argued it could not have characterised that expenditure as loss until September 2013 when the first tenant fell ill.

The court accepted the Council was unaware that anything had gone awry until the first tenant fell ill, but didn’t accept “that it follows from that that [the Council] was not aware that it had suffered loss”.

Lord Doherty held that the Council:

“…knew between December 2007 and June 2009 that it was incurring expenditure on construction of the development in reliance on the fourth defender’s advice. It did not know at the time it was being incurred that the expenditure was wasted or would fail to achieve its purpose. Nevertheless as matter of objective fact, and with the benefit of hindsight, the expenditure was wasted and did fail to achieve its purpose. As a matter of objective fact it was “loss, injury or damage”.

The court concluded that the Council “was aware of having suffered loss, injury or damage more than five years before the action was raised on 4 September 2018”. Accordingly, any obligation on the 4th defender to make reparation was extinguished by prescription.  

Whilst the decision might be seen as harsh for the claimants, it provides certainty (at least with the benefit of hindsight). But change is coming.

The new Prescription (Scotland) Act 2018 seeks to redress the perceived harshness arising out of cases like Midlothian meaning that time will not start to run against pursuers until they know:

1. They have suffered loss, injury or damage.

2. That that loss was caused by someone; and

3. The identity of the person who caused the loss.

When the critical sections of the Act do come into force, it is likely that defences based on prescription will be curtailed, increasing the scope for historic claims to be litigated. Until then, however, the future of prescription remains uncertain.

 Contact: Jamie Robb, Senior Solicitor jro@bto.co.uk T. 0141 221 8012