(Re)Setting the clock – the breeze that caused a storm*
The risk factors surrounding the prescription of obligations under the present law, and the likely future position under the Prescription (Scotland) Bill
In Star Trek: Generations, Malcolm McDowell turns to Captain Jean Luc Picard and explains that time is like a predator stalking its prey, and while you can try to outrun it with doctors, medicines and new technologies, eventually “time is going to hunt you down… and make the kill”.
From the final frontier to the grassy fields of Killearn, the passage of time has been a concern of pursuers and starship captains alike. Post-30 July 2014 and David T Morrison v ICL below, that concern escalated to chronophobia.
The good news is that the Scottish Government has a cure: the Prescription (Scotland) Bill. Whether this proves a panacea for the pain or sawing off a leg to fix a broken bone remains to be seen. What is certain is that, until clarity dawns, there remain real risks for solicitors advising litigating clients.
A brief history of time
The law of prescription affects everyone. Prescription dictates when obligations are extinguished and become unenforceable. The key legislation is the Prescription and Limitation (Scotland) Act 1973, which sets out the periods by which each type of obligation prescribes.
A whistle-stop tour of the current legislation is not possible in this article. Suffice to say that, for a significant proportion of obligations arising out of contract, delict or negligence, the relevant period is five years from the concurrence of fault and loss, injury or damage (s 6). If a pursuer fails to act within that period then, usually, any obligation by the defender to make reparation becomes unenforceable.
But what if the pursuer is unaware of their claim? Luckily the prescriptive clock has a snooze function: s 11(3).
Pre-2014, for the clock to start ticking the pursuer required knowledge that (a) they had suffered a loss, injury or damage, and (b) that loss, injury or damage was caused by the fault or negligence of someone else (the “causal component”). Knowledge was key; but a little knowledge can be a dangerous thing.
Since the mid-80s the ubiquitous view was that the identity of the defender was unnecessary: Dunfermline DC v Blyth & Byth Associates 1985 SLT 345. However, in July 2014 the UK Supreme Court turned this view on its head. In the Morrison case (2014 SC (UKSC) 222), which arose from the explosion at the Stockline Plastics factory in Glasgow, the court went further and explained that the clock could work fine without its causal component: all that was required was knowledge of loss, nothing more.
But when do you suffer loss? In Morrison this was obvious. The explosion left no one in doubt that something had gone wrong. More difficult, however, are economic losses where the defect may remain hidden for many years. In 2017 the Supreme Court addressed this in Gordon’s Trustees v Campbell Riddell Breeze Paterson LLP 2017 UKSC 75 (“CRBP”).
The court explained that s 11(3) “does not postpone the start of the prescriptive period until a creditor… is aware actually or constructively that he or she has suffered a detriment in the sense that something has gone awry… it is sufficient that a creditor is aware that… he or she has incurred expenditure” (para 21).
Subjectivity is irrelevant – expenditure can masquerade as legitimate expense, but is actually a loss. The problem for pursuers, and their solicitors, is that by the time the mask is pulled off, the five years may have elapsed.
Too late before the start?
Suppose you buy a house in 2000. Unbeknown to you there is a defect in the title, resulting in a diminution in value. Fifteen years later, when you come to sell, the defect is discovered and you sue your solicitor. Pre-CRBP, dogma would likely postpone the start of the prescriptive clock until 2015 (when you first became aware that something had gone wrong), giving you until 2020 to raise a claim.
Post-CRBP the clock starts much sooner. Why? The date of loss was when you bought the house for more than it was worth. The negligence occurred prior to this, during the conveyancing. Thus the concurrence of fault and loss is when you parted with your money. Did you know of this loss? Of course, because in 2000 you were aware that your wallet became significantly lighter. Thus, you had knowledge of loss in 2000 despite not realising that it was a loss, let alone an actionable one.
For solicitors advising pursuers, this requires being alive to the possibility that every claim on which they may have been instructed is a ticking time bomb and that, if they do not take prompt action to identify the earliest potential point at which the prescriptive clock may have started to tick, there is a significant risk of that bomb going off in their hands. At that point the only relevant prescriptive clock is the five years running on a potential professional negligence claim against them!
For defenders CRBP is welcomed: it provides certainty, without having to defer to the pursuers’ state of mind. It provides an opportunity to review pursuers’ claims for losses which can be objectively traced to a point more than five years prior to the raising of the action, thus providing a window through which claims can be thrown. However, there is a risk there too. For solicitors advising defenders, miss the opportunity to defend a client’s claim on the strength of a compelling CRBP prescription argument, and you could face a claim from that client for needlessly having had to write a cheque.
The window may nevertheless be a welcome one, but soon this window will be locked.
Back to the future
Clarity and dissatisfaction are found in equal measures in the CRBP decision. Clarity as to the law; dissatisfaction as to its state. It is perhaps unsurprising then, that less than three months after CRBP, the Scottish Government introduced the Prescription (Scotland) Bill.
The bill’s aim is to achieve an overall balance between the rights and obligations of creditors and debtors, by introducing new components required to start the prescriptive clock, namely:
- knowledge of the incurrence of loss;
- knowledge that the loss was caused by a person’s act or omission; and
- knowledge of who caused that loss (the “discoverability test”).
What will this mean in practice?
Suppose a developer instructs a contractor to build a commercial development. Shortly after completion, cracks appear. Several years later the development collapses. Who caused the loss? The engineer? The builder? The surveyor? The architect?
The conservative approach would be to sue everyone who could be liable for the loss, thereby protecting the pursuer and putting the defenders on notice. Under the bill, it is doubtful that a pursuer need go that far; they are entitled to take no litigious steps until satisfied that they know the identity of the person who caused the loss. When it comes to knowing your defender, a little knowledge could be a powerful thing.
From the defenders’ perspective, this may significantly prolong the raising of court actions, leaving them completely unaware of issues until many years later, by which time documents may have been lost, witnesses become untraceable, and companies dissolved.
Insurers need look no further than industrial disease claims to spot the problems that arise when defending vintage claims. Even when an insurer has been put on notice of a potential claim, it may be a considerable time before any action is raised, leaving many carrying hefty reserves and insureds paying increased premiums for claims that may never crystallise.
There will still be cases where long negative prescription kills claims which would otherwise survive the discoverability test; however, the potential for historic claims to emerge remains a real concern for defenders and their insurers.
For pursuers’ solicitors a tricky tactical question (and risk management minefield) is whether deliberately to delay raising in the hope that cases which may have prescribed (per CRBP) will emerge on the other side of the bill revived and ready to be raised. Conversely, for potential defenders, perhaps now is the time to try to settle or resolve cases. Much will depend on what transitional provisions are introduced (though it is currently thought that the Act will only affect losses incurred post-Royal Assent).
For more than 30 years, the legal profession assumed it could tell time. We have since had to reset our clocks in line with London, and now the Scottish Government looks to tinker with our timepieces once again.
The ethos of prescription has always been a balancing act, weighing the interests of pursuers with genuine claims against the need for certainty for defenders. Pre-Morrison ideology achieved that, and whilst the decision in CRBP was harsh, it provided certainty. In an attempt to rectify this perceived harshness, the Government has created uncertainty, swinging the pendulum completely the other way.
With stage 2 of the bill having completed on 25 September 2018, change is coming. Until then, parties litigate in uncertainty and the opportunity to land potential knockout blows based on prescription will soon be blocked. For pursuers, the hiding is almost over. For defenders, it’s open season; good hunting. For solicitors, be careful not to be caught in
Gail Cook is a client executive within Lockton’s Master Policy team. She has 30 years’ experience in the field of professions underwriting and risk management and is the main Lockton contact for risk management matters. She can be reached on 0131 345 5571 or email@example.com
*Thanks go to Scott Manson, advocate for his input and to Karen Stachura, BTO LLP who came up with the title of this article.