A recent Sheriff Court decision has added further fuel to the fire in the ever-growing debate around prescription in Scotland.
In WPH Developments v Young & Gault LLP, an architect drew up plans for a property developer. The outer boundary of the site was incorrectly drawn in November 2012. The developer paid contractors to build a housing estate on the site. The housing estate encroached onto neighbouring land. The developer was unaware of the error until he was notified and asked to demolish and rebuild the wall in February and May 2014. The developer raised a court action against the architect in November 2018, seeking damages for legal and professional fees, the cost of demolishing and relocating the wall, and the sums agreed in settlement with the neighbouring landowners.
The architect argued that the developer’s claim had prescribed. In Scotland, a creditor has five years from the date of their loss (which arises from breach of contract) to raise a court action, otherwise the claim has prescribed. The architect argued that the prescriptive clock started to run when the developer incurred expenditure instructing contractors to build on the land he did not own. The plans were erroneously drawn in November 2012. The developer argued that the prescriptive clock started to run when he was notified of the encroaching boundary in 2014.
The start of the prescriptive period is determined by the Prescription and Limitation (Scotland) Act 1973. The starting point is section 11(1), the clock starts ticking on the date on which the loss, injury or damage occurred. Section 11(3) allows for an exception to this rule where the creditor was not aware (and could not with reasonable diligence have been aware) that loss, injury or damage had occurred. In that circumstances, the prescriptive clock starts ticking on the date when the creditor first became (or could with reasonable diligence have become so aware).
Whilst section 11(3) appears to sensibly allow a longer period to raise court proceedings for those who are, quite reasonably, completely unaware that they have suffered a loss, the case law in recent years has eroded that protection for creditors.
In David T. Morrison & Co Ltd v ICL Plastics Limited, Mr Morrison’s shop suffered extensive physical damage in an explosion. Relying on section 11(3), Mr Morrison did not raise proceedings until he became aware that ICL were at fault, which was more than five years after the date of explosion. However, the Supreme Court held that the prescriptive clock began ticking when Mr Morrison became aware he had suffered a loss, which was plainly on the date of the explosion.
This reasoning was followed in Gordons' Trustees v. Campbell Riddell Breeze Paterson. In this case, landlords wanted to recover vacant possession of land and served notices to quit on a tenant, and raised proceedings for eviction in the Scottish Lands Court. The court held that the notices to quit were ineffective for two areas of land. The landlords then raised proceedings against their solicitors for professional negligence. This action was raised within five years of the Scottish Lands Court’s decision, but more than five years after instructing and paying their solicitors to serve the notices. The Supreme Court held that the landlords became aware of their loss when the tenants did not vacate the land, and not when the Scottish Lands Court gave its decision. In this case, according to Lord Hodge it did not matter that the creditor is unaware that “something has gone awry rendering the creditor poorer or otherwise at a disadvantage”; and, instead, it is sufficient that the creditor is aware that it has “incurred expenditure”. Their claim had therefore prescribed.
Again, in Midlothian Council v. Blyth & Blyth, the Council sued engineers after a housing development had to be evacuated and demolished. It was uninhabitable due to the presence of gas. The Council claimed that the engineers failed to advise that a gas suppressant system was required. Proceedings were raised within 5 years of the Council’s awareness of the wrongful act, but more than 5 years after it first incurred expenditure on the development. The Court of Session held that the prescriptive clock started ticking when it first incurred expenditure, regardless of the fact the Council did not know it was wasted.
These decisions cause problems for creditors, as it seems unfair that one cannot sue when, through no fault of their own, they do not discover in good time that their expenditure has been wasted as a result of the negligent act of another.
In WPH Developments v Young & Gault LLP (in liquidation), the Sheriff concluded that Midlothian Council was decided wrongly as Gordon’s Trustees was incorrectly applied to that case. The Council had no knowledge that the loss had occurred when it was incurring expenditure in reliance upon the negligent advice. The wasted expenditure was latent, and ‘concealed as expenditure to the benefit of the Council, not to its detriment; it was masquerading as due and proper payment for a valuable consideration; it had, at all times, the façade of a quid pro quo for a sought-after return… The creditor is obviously aware of the incurring of expenditure but is wholly unaware of the occurrence of damnum, because the detriment suffered by the creditor (the wasted expenditure) is latent, being concealed, disguised or masquerading as something other than “detriment”. Therefore, the Sheriff took the view that Gordon’s Trustees should not be relied upon to suggest that simply being aware of incurred expenditure prevents reliance on section 11(3) (in circumstances involving latent damage, and later awareness that the expenditure was wasted on reliance of negligent advice).
The Sheriff applied that reasoning to the present case, as ‘awareness of the incurring of expenditure is not necessarily the same as awareness of the occurrence of damnum, for the purpose of section 11(3).’ The pursuer’s case was therefore not dismissed as the defender had hoped.
This decision may be subject to appeal, which would mean further judicial consideration of this issue. New legislation is expected to clarify the position in relation to prescription. The provisions of the Prescription (Scotland) Act 2018 have not yet come into force. This Act changes the current position – that time starts to run from the point where the pursuer becomes aware it has suffered a loss – to the effect that the clock starts running when the creditor or pursuer becomes aware that loss, injury or damage occurred, that loss, injury or damage was caused by another’s act or omission, and crucially, that the creditor is aware of the identity of the person, but not that the act or omission is actionable in law.
It is expected that these changes will remedy the harshness of earlier decisions of the Court of Session and UK Supreme Court. However, to what extent this will have a positive impact is entirely speculative. Moreover in order for the Act to be brought into force, there will need to be carefully considered transitional provisions which allow the law to flow smoothly from the 1973 Act to the 2018 Act. Exactly how this will work in practice, and when we should see the provisions coming into force, is yet to be seen.